Investors are not impressed with Paysafe (NYSE:PSFE) and its recent Nov. 11 quarterly report. Ever since then, PSFE stock has been tanking.
On Aug. 12, 2021, the stock reached a peak of $10.88 per share. Now, it’s down to a close of $3.46 as of Jan. 25. That represents a tumble of $7.42, or over 68% in the past six months or so. That’s not a good sign for the future.
Moreover, most of this decline came after the Nov. 11 third-quarter report came out. In effect, analysts basically changed their minds about the company’s growth prospects as a fintech stock.
For example, since Nov. 8 — when PSFE closed at $7.94 per share — the stock has declined precipitously. In fact, it lost more than half of its value (56.4%). Moreover, even since the end of 2021, PSFE is down around 8% year-to-date (YTD). So, what is causing all this disappointment in PSFE stock?
PSFE Stock: Where Things Stand
Paysafe reported disappointing growth in its Q3 earnings report; sales were down 1%. Even though the company’s total payment volume grew 19% year-over-year (YOY), the negative sales growth essentially implies that Paysafe is under heavy competitive pressures. That was bad news for PSFE stock.
Moreover, the company’s outlook is not that great, at least from some analysts. Its two greatest areas of growth are online betting and crypto investing. This is because online investors and gamblers need access to funds on sites that regular banks might not be willing to finance or operate.
In the previous quarter, Paysafe had reaffirmed its 2021 guidance. That was for sales to reach between $1.53 billion and $1.55 billion, or $1.54 billion at the midpoint. However, on Nov. 11, Paysafe lowered its full-year guidance to sales between $1.47 billion to $1.48 billion, or $1.475 billion at the midpoint. That represents a more than 4% decline in forecast sales for the year.
With the latest downturn in crypto investing and the stock market, the outlook for trading in these areas is not great, at least in the short run. The markets are always forward-looking. They see that Paysafe could continue to have trouble in some of its most essential markets.
For example, according to Seeking Alpha, revenue next year is forecast to rise just 4.8%, from $1.47 billion to $1.54 billion. This is based on the average of nine analyst forecasts as surveyed by the site.
That is not going to impress anyone, especially since PSFE stock already has a fairly high valuation. For example, its forward price-earnings (P/E) multiple for 2023 is 32 times. Moreover, its price-to-sales (P/S) ratio is well over 1 times revenue at 1.63 times for 2023, according to Seeking Alpha.
However, not everyone thinks things are so bad at Paysafe. For example, recently its largest shareholder started buying more stock. According to Seeking Alpha, principal shareholder Cannae (NYSE:CNNE) bought $22.2 million of its shares. This occurred in December 2021, when PSFE stock had already fallen a good deal. This has raised Cannae’s stake in the company from about 8.26% to closer to just under 10%.
That is a very smart move, as it allows the investor to lower its average cost in the company’s shares. Moreover, they are probably taking a much longer-term outlook on Paysafe than most investors. The investor likely has a lot of faith in the growth of the U.S. online and in-house gambling markets and the need for payment mechanisms that Paysafe can provide.
What to Do with Paysafe Stock
As I pointed out in my last article on PSFE stock, management talked at length about “softness” in its core markets. This likely had a dampening effect on analyst viewpoints. But, surprisingly, that is not the case.
For example, the average of five analysts’ price targets as measured by Tipranks is $5.38, or 56% above the Jan. 25 close price of $3.46 per share. Additionally, Yahoo! Finance shows that nine analysts covering the stock have an average price target of $6.39, or 85% over the recent close. The same is true at Seeking Alpha.
In other words, these analysts are also taking the long-term view, just like Paysafe’s principal shareholder is doing with the renewed investment. That should give existing investors some good encouragement, especially with PSFE stock at its lows now. Moreover, maybe investors should follow suit in an almost contrarian fashion, bucking the trend in the stock and buying more shares as well to lower their own average cost.
On the date of publication, Mark R. Hake did not hold (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.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.