As I’m writing this, Paysafe (NYSE:PSFE) is starting to bottom out. After tanking in price last month, PSFE stock seems to be finding a floor at around $3.50 per share. Down more than 75% year-to-date, and 54.5% in the past month alone, it may not get much cheaper.
Even so, that doesn’t mean that the story has changed. After releasing underwhelming quarterly results, and walking back guidance, the verdict came in for this company. Before, it was touted as a growth story, with exposure to hot markets like online gambling (iGaming).
Now, with the company as-a-whole facing challenges, the term “growth story” has no business being used to describe Paysafe. Instead, this is a mature business. One that received too high of a valuation, when it went public via a special purpose acquisition company (SPAC) merger earlier this year.
That’s not to say that things can’t improve. But for the time being, it appears the company (at best) will experience little revenue growth in the coming year. As was the case when I last wrote about it last month, there’s little reason to waste your time here.
The Problem with PSFE Stock
Take a look at the investor presentation released when Paysafe’s SPAC deal was first announced a year ago, and you’ll see why investors initially were willing to price it at a premium. Throughout the slide deck, the company makes the case why, thanks to projections of steady revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth, this was a company deserving of a premium valuation.
However, when you take a look at their financial results now, it isn’t pretty.
Although experiencing high growth in certain areas, overall, the business is floundering. Instead of growing total sales, areas of strength like U.S. iGaming are just making up for weakness across its legacy businesses.
For example, despite growing its U.S. iGaming revenue by 50%, weakness in its European gaming operations resulted in revenue for its Digital Wallet segment dropping 15% year-over-year. Quarterly revenue overall for the quarter ending Sept. 30 ($353.6 million) was basically unchanged compared to the prior year’s quarter ($355.5 million).
Ending up roughly even-steven may not be the worst thing in the world. But it’s a problem if you try to sell yourself as a rising star. The market accurately realized it wasn’t one and readjusted its valuation accordingly.
Lackluster Performance Will Likely Continue
It may seem unfair to judge PSFE stock just on results from one fiscal quarter. Yet, it’s not just the company’s bad quarterly numbers that resulted in many souring on it. The payment solutions provider’s lowering of guidance played a big role in its cratering as well.
Currently projecting revenue of between $1.47 billion and $1.48 billion in sales this year so, at best, the top line will increase by only four percent this year. And, based on analyst projections for next year, expect more middling performance.
Sell-side estimates call for it to generate between $1.5 billion and $1.56 billion. Again, an increase in its top line of just a few percentage points.
As for other metrics, like adjusted EBITDA, things are also underwhelming. Current guidance calls for adjusted EBITDA this year to come in between $425 million and $435 million. Analysts were before expecting a much higher number (between $480 million and $495 million). This current range is also barely above the $417.7 million in EBITDA Paysafe reported for 2020.
Given it’s both failing to grow its sales, as well as failing to expand its margins, I wouldn’t put much faith in the situation improving over the next 12 months. Instead, expect the quarters ahead to bring more mediocre results. In turn, this will keep shares stuck at or near current price levels.
The Verdict with Paysafe
Receiving an “F” in my Portfolio Grader, it’s still “game over” for Paysafe. At least, until the issues affecting its legacy businesses improve. When this happens, areas of strength (such as iGaming) will help to improve its top and bottom line. Instead of now, where they’re just helping to make up the difference.
Even if you’re more of a value investor than a growth investor, I wouldn’t say this company is in “deep value” territory. Using metrics like Enterprise Value/EBITDA (EV/EBITDA), it currently trades at a valuation in line with other slow-growing payment processing peers.
Any way you approach it, there’s not much that’s appealing with PSFE stock right now. Things may change down the road, but for now, it’s best to steer clear.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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