Paysafe (NYSE:PSFE) has been struggling since closing outs its special purpose acquisition company (SPAC) deal. PSFE stock has shed more than 40% of its value since completing the merger with Foley Trasimene Acquisition II in late March of this year. Plus, weak guidance for the third quarter has weakened the stock even more lately. However, investors seem to be ignoring the bigger picture — the company’s healthy long-term outlook.
Paysafe is a specialized payments platform that has its tentacles in some of the fastest-growing sectors. It has a leading position in the iGaming industry, where its payment volumes have been rising at an incredible rate. Moreover, the company has also had a strong presence in the bustling online gaming and the cryptocurrency sectors.
With investors spooked by Paysafe’s Q3 guidance, PSFE stock is now an extremely cheap pick that still offers an opportunity to play the weakness experienced by several de-SPAC names.
PSFE Stock: Q3 Is Only a Stumbling Block
Paysafe had an impressive Q2, reporting a healthy 41% increase in payment volumes to $32.3 billion. Sales rose by just 13% to $384.3 million, however, due to weaker take rates during the quarter. Still, the main concern for investors right now is company’s lackluster Q3 guidance.
Specifically, analysts expected Q3 revenues to be at $389 million. Instead, though, Paysafe has guided revenues to be as low as $360 million. High take rates in its digital marketing business and pandemic-induced headwinds have impacted the company results.
That said, CFO Ismail “Izzy” Dawood recently stated that the company’s third-quarter troubles will likely be short-lived. In the Q2 earnings call, Dawood noted:
“We expect continued strong growth in our integrated processing segment and a return to normalized post-COVID seasonality.”
Looking ahead, acquisitions are likely to be a major growth driver for Paysafe as well. The company recently acquired alternative payments platform PagoEfectivo. Moreover, PSFE also plans to close out its deal with SafetyPay by the conclusion of 2021 in order to establish its position in Latin America.
Paysafe believes these companies will add significant value. But the cherry on top? Its planned acquisition of Germany’s Viafintech, which has a strong presence across Europe and continues to expand at an impressive pace.
Lastly, focusing on new payment verticals could also pay a lot of dividends for Paysafe and PSFE stock shareholders, especially in the iGaming business. In particular, the company needs to focus more on the fast-growing U.S. market.
The Valuation
Paysafe seems far more attractive at this stage in comparison to its original stock price which shot above $12. Now, all eyes are on the company to return to its winning ways and achieve its 2022 sales targets of 13% growth and $1.75 billion. By and large, investors have lost confidence in the payments firm after its soft Q3 guidance.
Of course, if we consider its massive debt load of $1.87 billion, the company may seem overpriced to some. However, it stands to make $863 million in cash with its 75 million warrants at an $11.50 strike price.
PSFE stock currently trades at just 3.8 times forward sales while most fintechs trade at over 10 times. True, these companies have revenue growths above the 13% rate that Paysafe expects. Nevertheless, this stock is still incredibly cheap and offers great long-term value.
Bottom Line on PSFE Stock
PSFE stock has had a torrid time at the market after weaker-than-expected Q3 guidance. However, this is only a minor roadblock in its growth story, all things considered. It is likely to return to winning ways in Q4 and beyond, moving towards becoming one of the top fintechs in the world.
So, with the stock now trading at a deep discount, it may be wise to invest in this payments play today.
On the date of publication, Muslim Farooque 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.