Special purpose acquisition companies (SPACs) have been on a massive losing streak lately. Just about all of the high-profile SPACs have been caught up in the undertow. This has hit Paysafe Limited (NYSE:PSFE), a leading online payments company. PSFE stock is set to open August trading at $10.79.
Paysafe came public via a SPAC led by Bill Foley, one of the all-time great capital allocators in the financial sector. However, PSFE stock has been caught in the falling tide, with shares now approaching the initial $10 SPAC offering price.
There are some legitimate concerns around Paysafe. On the whole, however, it seems like a promising company that simply has gotten caught in the wrong place at the wrong time. A lot of lesser-known tech companies have been selling off recently, and SPACs have gotten crushed. This creates an opportunity to get into PSFE stock right near its $10 offering price.
The Value Proposition Driving PSFE Stock
Paysafe offers a compelling value proposition. It’s a huge online payments service. It’s not trying to disrupt something or overtake the dominant players. Rather, Paysafe is one of the established leaders, and it offers payments across five key verticals.
You have payments for digital gaming and related services such as Fortnite, Roblox (NYSE:RBLX) and Twitch. There’s payments for travel companies such as airlines. Paysafe handles money for some brokerages and fintech services. It also participates in the booming online gaming sector, covering both private companies and state-run lotteries. Finally, in a less-glamorous but absolutely huge market, there’s integrated payments for online software-as-a-service (SaaS) companies.
A lot of traders are ignoring Paysafe because it only has an overall revenue growth rate in low double-digits. This is smaller than the overall online payments industry. However, it’s important to realize that PSFE already has a big chunk of the more-established markets such as integrated payments. The big growth right now is in payments for gaming, and Paysafe is a player there. However, gaming moves Paysafe’s overall numbers less than rivals because the company already has such a large existing business.
An Established Company, For Better or Worse
Paysafe has been in business for 25 years. Needless to say, Covid-19 wasn’t the company’s first crisis to deal with. So, any investor in Paysafe should be aware that this is a more stable operation rather than a young upstart. This means it won’t have the sort of breathtaking growth you could see from many SPAC opportunities. On the other hand, downside should be more limited because Paysafe already has a reliable revenue base and diverse client list.
One interesting aspect, however, is that the company has a ton of debt — $2.0 billion of long-term debt, to be specific. This has left the company with a fairly mediocre credit rating from the debt-rating agencies. In addition to that, Paysafe tends to grow through acquisitions, so it may need to take on more debt or dilute the stock to fund its operations. There’s nothing wrong with any of this, to be clear, it’s just not what you’d expect from a tech company that has just gone public.
On the plus side, Paysafe is already set to generate more than $1.5 billion in revenues this year. Analysts see that figure climbing to nearly $2 billion in 2023. For profits, Paysafe is expected to eke out a small amount of income in 2021. By 2023, however, analysts see Paysafe earning 32 cents per share. This would put the stock at just 34 times 2023 earnings. That’s not bad at all for a company like this that is growing revenues at a double-digit rate.
PSFE Stock Verdict
To be sure, it’s been a total bloodbath for SPAC stocks over the past few months. It’d be easy to throw in the towel on the whole space, PSFE stock included. SPACs have a bad reputation historically, and many of 2020’s SPAC offerings now reminding investors why that is the case.
That said, not all SPACs are bad. Particularly in this latest batch, a lot of quality sponsors launched SPACs. Such was the case with the SPAC that ultimately merged with Paysafe. And Paysafe, for what it’s worth, is already a large company that has more than proven itself in the payments arena. PSFE stock does not deserve to be treated with the same skepticism as the average electric vehicle (EV) SPAC with no revenues or proof of concept.
Put another way, Paysafe should enjoy a considerable bounce when market conditions improve. This is a solid company that will find a loyal shareholding base in due time. Does that mean PSFE stock is going to skyrocket in the near term? No, not necessarily. However, expect shares to get a solid bounce once the current wave of selling in the SPAC arena finally wears out. Paysafe is one of the top-tier names to come out of the SPAC boom, and it should be able to hold well above the $10 level.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.