Paysafe (NYSE:PSFE) went public after merging with shell company Foley Trasimene Acquisition II Corp, led by billionaire businessman Bill Foley. Since its debut on March 31, PSFE stock has shed more than 25% of its value.
Nevertheless, Paysafe is well-positioned to expand its market leadership in specialized payments.
The dip in PSFE stock is an excellent opportunity to scoop up the name at a considerable discount.
PSFE stock has failed to gain momentum despite the impressive earnings results and positive developments with the company.
Average analyst price targets point to at least 50% of its current price. The possibility of Reddit traders lifting PSFE stock is unlikely at this point as less than 7% of its share float is currently sold short.
Paysafe has an incredible outlook marked by robust growth in free cash flows, revenues, and financial flexibility.
Let’s dive a little deeper into Paysafe’s current positioning to assess where it is.
Dominating iGaming and Digital Commerce
Paysafe is done exceedingly well to cement itself as a specialized payments processor. It is currently the leader in the digital commerce realm, having reported more than $92 billion in global transactions last year.
Perhaps its most relevant business segment within digital commerce is the fast-growing integrated processing segment.
Revenues from the company’s eCash segment shot up 62% to $112.9 million on a year-over-year basis. It now has 12.8 million users and represents 30% of the business.
Paysafe has partnered with several companies to cash in on the momentum across various verticals.
For example, it has partnered with Coinbase and eToro to facilitate crypto trading. It also partnered with Microsoft (NASDAQ:MSFT) as a payment option on its Xbox console.
Paysafe had hoped to become a “preeminent i-gaming leader” and has the potential to solidify its position as a market leader.
In the most recent quarter, it saw a 66% year-over-year improvement in revenues related to iGaming.
Its services are live in 15 states and supported by over 30 operators, including industry stalwarts in Caesars Entertainment (NASDAQ:CZR) and DraftKings (NASDAQ:DKNG).
Financial Flexibility and PSFE Stock
Paysafe’s financial obligations are far from daunting at this point. It has $274 million in cash with a total debt of $1.79 billion.
Its leverage ratio is at 3.5 times, which is well under control. Moreover, large funds, including AllianceBernstein (NYSE:AB), have bought in. These are companies that can negotiate the terms of its debt without hiccups. Its non-current debt is also declining at a healthy pace.
The management reaffirmed its 2021 guidance with a slight upgrade to the lower end of its revenue target.
It now stands at $1.53 and $1.55 billion, which relates to annual growth of 9% to 10%. The adjusted EBITDA margin guidance is 32% in comparison to 30% from the previous quarter.
Management believes that the adjusted EBITDA can rise to $660 million by 2023, benefiting from the expansion of margins.
Based on analyst assumptions of 10% to 11% growth from 2021 to 2025, you’d expect a healthy increase in free cash flows for the company.
Its levered FCF growth on a year-over-year basis stands at a dumbfounding 207%.
Bottom Line on PSFE Stock
PSFE stock’s underlying business continues to perform exceedingly well and is establishing its dominance in its niches.
Its balance sheet is in great shape, and it should start generating healthy cash flows in the coming years.
I expect the company to not only grow organically but acquire other companies to complement its business. Therefore, PSFE stock is an undervalued fintech play that is worth investing in.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
