At this point, just about everyone has given up on most stocks that came public via special purpose acquisition companies (SPACs). It’s understandable. SPACs have been a dreadful asset class over the past six months. But in some cases, such as with Paysafe (NYSE:PSFE), PSFE stock, people are throwing out the baby with the bathwater.
Unlike so many other fallen SPACs, Paysafe has improving fundamentals. And there is insider buying to support that idea. The company is a large diversified player in an industry that remains attractive given the shifting economic winds. With 2022 guidance coming in better than expected, Paysafe is set to surprise its skeptics over the rest of the year.
Is Paysafe Making Money? Yes, It Is
A common charge thrown against many speculative investments now is that they are unprofitable. On an accounting basis, Paysafe didn’t deliver a profit on an EPS basis in 2021. However, there are costs associated with going public, and 2021 was also a volatile year thanks to Covid-19.
Analysts see Paysafe delivering 9 cents a share of earnings in 2022, with this rising to 16 cents in 2023 and 22 cents in 2024. Those numbers are quite strong if the company can in fact reach them. It’d amount to a 20x P/E for next year, and just a 15x P/E for 2024. That’s an attractive valuation ratio for a dynamic company in fields such as sports betting and cryptocurrency payments which have significant untapped growth possibilities.
Additionally, Paysafe is much stronger on both an EBITDA and free cash flow basis. On free cash flow, for example, the company delivered $279 million, $404 million, and $218 million of positive FCF in 2019, 2020, and 2021 respectively. These are large numbers in their own right, and also make for a reasonable valuation ratio on a company with an enterprise value a hair below $5 billion as of this writing. Don’t conclude that Paysafe is unprofitable simply from a quick glance at its trailing P/E ratio.
Insiders Believe In Paysafe
As I documented in my most recent article on Paysafe, insiders have been buying into the company. A team of management and directors, led by the CEO, all bought stock at the same time in December. The CEO by himself picked up $1 million of shares.
This was followed by an even larger purchase. Cannae Holdings (NYSE:CNNE) picked up $22 million of PSFE stock shortly thereafter. Cannae was already Paysafe’s largest holder, and is the company associated with financial services industry legend William Foley. It’s a big sign of confidence when Cannae is willing to step up with a large purchase in a stock that’s down sharply.
What were insiders so excited about? It might be related to the fact that the company was turning the corner after a rough 2021. The company’s Q4 results from March confirm that idea. The company grew payment volumes 20% on the quarter, and returned to flat top-line revenues after the prior dip.
Importantly, the company also delivered guidance that was slightly ahead of estimates. That might not seem like a big deal. But given that Paysafe had shocked the market with bad guidance in 2021, causing the stock to tumble below the $5 mark, people might have had the idea that Paysafe was a busted company. Instead, the company has returned to growth in key metrics and has a favorable outlook for this year as well.
PSFE Stock: The Worst Is Over
It’s been a dismal year for both SPACs and payments stocks. Paysafe, at the intersection of both trends, has suffered from terrible investor sentiment.
Look under the hood, however, and things are starting to pick up. The operating results showed a marked improvement this quarter versus the previous one. Guidance for 2022 was reasonably upbeat. And insiders bought a lot of stock in the company. With PSFE stock down this far, that’s plenty to put together a solid bullish investment case for the company.
— Ian Bezek
Silicon Valley Bank Collapse: Steps You Must Take To Protect Yourself [sponsor]This is the 2nd largest bank failure in United States history... and the most massive bank failure since Washington Mutual. That should send chills down your spine because Washington Mutual was the first domino to fall in the2008 financial meltdown. We could be staring down the barrel of the next collapse right now. Discover how.
Source: Investor Place