Paysafe (NYSE:PSFE) is a payments company focused on electronic applications such as digital wallets, e-cash, and online betting. The company had the misfortune of going public via a special purpose acquisition company (SPAC). As both SPACs and payment stocks fell wildly out of favor over the past six months, PSFE stock collapsed.
Shares had initially traded up to almost $20 in the wake of the excitement around the deal. Now, however, the stock has sunk to below the $4 mark. With Paysafe down a punishing 75% from levels seen early last year, is it time to buy the fallen star?
Yes, yes it is. Here’s why.
Payments Stocks Got Destroyed in 2021
PSFE stock had a terrible performance last year, there’s no argument there.
However, it was hardly the only online payments company that struggled. Larger rival Global Payments (NYSE:GPN) was the worst-performing tech stock in the S&P 500 index for much of 2021; shares finished down around 40%.
Even the credit card companies such as Visa (NYSE:V) suffered big sell-offs. A confluence of factors caused this. International travel — which is a big driver of payments profits — remained depressed due to new Covid-19 variants. When people travel to foreign countries, they have to exchange currency, which gives payments processors the opportunity to earn higher margins on transactions involving multiple currencies.
Additionally, investors feared disruption. Cryptocurrencies were viewed as a threat to traditional payments mechanisms. This concern has faded as the crypto market has sharply corrected in recent months. Also, e-commerce sites such as Amazon (NASDAQ:AMZN) started battles with credit card companies such as Visa, though it appears the credit cards have won that skirmish for the time being.
There was never much indication that these feared disruptions were actually occurring. Companies like Global Payments and Visa are posting growing earnings regardless, but during panics, fear feeds on itself.
Over the past month or so, however, payments stocks have firmed up. This creates an opportunity to buy into laggards such as Paysafe.
Insiders are certainly seizing the moment.
Insiders Agree, PSFE Stock Is Attractive
If a stock is so cheap, then why aren’t company insiders buying it? That’s often a question you hear for a stock that has dropped sharply, such as Paysafe.
In this case, that question no longer applies. Because, in December, Paysafe’s insiders stepped up with a huge set of stock purchases. The company’s chief executive officer, Philip McHugh, bought 290,000 shares of PSFE stock for a total outlay of roughly $1 million. He was joined by other Paysafe leaders as well with smaller purchases.
The CEO’s purchase was hardly the end of it. Cannae Holdings (NYSE:CNNE) bought more than $22 million of PSFE stock recently as well.
Cannae, if you’re not familiar, is the holding company controlled by financial services legend William Foley. Foley has had a long and storied track record turning around real estate and financial industry businesses. Foley led the Paysafe SPAC and is stepping in to buy up more of the stock while it’s unusually cheap.
Why This Is An Attractive Price
Paysafe used to be a publicly-traded company over on the London stock exchange. Then, in 2017, private equity firms Blackstone (NYSE:BX) and CVC took Paysafe private for around $3.9 billion. Including debt, the total consideration reached almost $5 billion for the company.
With PSFE stock at about $3.75 today, its current enterprise value is roughly $4.7 billion. Thus, according to the market’s current estimation, Paysafe is worth roughly $300 million less now than private equity was willing to pay for the company in 2017.
This is quite irrational.
After all, Paysafe only generated $1 billion in annual revenues back then. Now, annual revenues are up to around $1.4 billion. Given that well-respected buyers felt the company was worth $5 billion years ago and the business is 40% larger today, the valuation should be considerably above the $5 billion threshold.
A $7 billion enterprise value, which would match the company’s 40% growth since 2017, would put the stock price into the mid-$7s today. In retrospect, the opening $10 SPAC deal price for Paysafe seems to have been a bit too aggressive. However, it’s not too difficult to argue that a fair price for PSFE shares today is closer to $7 or $8 instead of $4.
PSFE Stock Verdict
Paysafe had a truly awful 2021. There’s no two ways around it. However, much of the stock’s decline was due to outside factors rather than anything wrong with the company itself. When industry leaders like Visa are under pressure, it’s hard for a new SPAC like Paysafe to stay afloat.
That said, 2022 is shaping up to be a much better year. Paysafe’s shares have stabilized despite a continuing rout in growth and speculative areas of the stock market. With both insiders and the SPAC deal’s sponsors stepping up to buy more of the company, it seems like an attractive entry point right here.
On the date of publication, Ian Bezek held a long position in GPN and V stock. He also held a long position in Paysafe via the sale of $3 strike January 2023 naked puts. 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.