Paysafe (NYSE:PSFE) illustrates why ifs and buts are frequently a poor investment strategy. At a surface level, PSFE stock should not be down more than 70% from its market debut. However, despite competing in several growth sectors, the stock continues to be under pressure. One reason is that all these sectors have either fallen out of favor or are yet to be clearly defined.
That’s why there’s risk in the short-term prospects for PSFE stock. However, if you buy into the thesis that the sectors currently out of favor won’t stay that way, then the reward of owning Paysafe may outweigh the risk.
In this article, I’ll offer my perspective on the current environment surrounding Paysafe. Here’s what you should know about PSFE stock moving forward.
PSFE Stock: Positioned in Sectors Primed for High Growth
Paysafe is positioned in several sectors with high growth potential.
For starters, the company has partnerships with a number of sportsbooks. These included DraftKings (NASDAQ:DKNG), Caesars Entertainment (NASDAQ:CZR), PointsBet (OTCMKTS:PBTHF), FuboTV (NYSE:FUBO) and Flutter Entertainment (OTCMKTS:PDYPY). That gives the company a strong foothold in the growing sports betting sector.
That’s not all, though. This company is also positioning itself in the metaverse via partnerships with Roblox (NYSE:RBLX), Sony (NYSE:SONY) and Meta Platforms (NASDAQ:FB). And if that wasn’t enough, through its Digital Wallets vertical, Paysafe supports 38 cryptocurrencies and continues to build a “pipeline of crypto platforms seeking pay in and pay out solutions.”
However, while metaverse stocks have a bullish outlook, the other two sectors have cooled considerably. But that doesn’t mean they won’t heat back up.
For example, the long-awaited arrival of legalized sports betting in New York delivered even better than expected. In just three weeks, the state set an industry record. And, with significant drivers like the Super Bowl (and March Madness on the way), more records may fall. Plus, as fellow InvestorPlace contributor Dana Blakenhorn opined correctly, sports betting is a cash cow for states that still need money to mend their budgets. It’s hard to see the sector not delivering on bullish growth forecasts.
Finally, of course you can be a skeptic of cryptocurrency. But for millions of individuals in their 20s and 30s, it’s their new fiat currency. And that’s not a reality you should quickly dismiss. I remain a crypto skeptic. But my reservations center more around a belief that the crypto universe needs to get considerably smaller, not that its going away.
In my opinion, the real problem for these two sectors — and perhaps the metaverse in the future — is government regulation. Or perhaps a better way to state that is concern over what regulation may look like. And with the United States in an election year, it’s unlikely that there will be any clarity on the regulatory environment anytime soon.
This means that, even if you believe in the long-term outlook for Paysafe, things may not get that much better. In fact, they could get worse.
The Bottom Line on Paysafe
Even trading around $3.60 as of this writing, PSFE stock is not considered oversold by classical technical measures. Still, once a stock enters the penny stock conversation, the question is survival. What is the risk of losing all your money because the company goes bankrupt?
I don’t see that as being very likely. As fellow InvestorPlace contributor Joseph Nograles points out, the company has a positive and growing free cash flow. What’s more, its recent adjusted EBITDA of $106 million was in line with the upper end of its guidance, even though it was lower than the prior quarter.
However, as Nograles also notes, you have to look at the whole picture if you’re going to look at fundamentals. To that end, Paysafe continues to lower its revenue estimates. There’s something to be said for lowering expectations. But in a market that is embracing a risk-off sentiment, that is not likely to play well.
On the other hand, though, a speculative investor could surmise that the lower PSFE stock goes, the more the reward outweighs the risk. If that describes you, keep your position small and let the company prove it’s growing revenue. Either way, PSFE stock should merit a place on your watchlist. If shares do start to move, you’ll have time to catch it on the way up.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.