Fintech
Should You Consider Shift4 Payments for FinTech Growth?
As interest rates are expected to decline over the course of 2024 and 2025, fintech companies are poised to benefit from the resulting economic growth and increased market liquidity. This environment seems favorable for fintech stocks with innovative solutions and solid business models.
Shift4 Payments, Inc. (FOUR) is a payment processing company that offers end-to-end payment solutions and business analytics tools. Its software is used by large companies such as eBay Inc. (EBAY) and the Marriott hotel chain, and focuses primarily on the hospitality, lodging and sporting events sectors.
In its fiscal first quarter, FOUR generated gross revenue of over $700 million, up 29% year-over-year. While this growth rate is impressive, it fell short of Wall Street’s expectations of $751 million. Additionally, the company has failed to beat consensus revenue estimates in the past three quarters. So, in conclusion, it reported quarterly earnings of $0.54 per share, missing analysts’ estimate of $0.61 per share.
Typically, a stock that fails to meet Wall Street expectations would cause a stock to decline. However, the stock has remained resilient as investors have focused on the company’s steady annual financial guidance. FOUR shares have gained 8.3% over the past month, but are down 2% year-to-date, closing the latest trading session at $73.55.
Here’s what could impact FOUR’s performance in the coming months:
Mixed financial performance
For the first quarter ended March 31, 2024, FOUR’s gross revenue increased 29.3% year-over-year to $707.40 million, while its gross profit increased 27.3% from the prior-year figure to $175.90 million. FOUR’s operating income improved 143.2% from the prior-year quarter to $21.40 million.
However, the company’s overall revenue fell 40.8% year-over-year to $10 million. Additionally, FOUR reported adjusted earnings EBITDA of $121.70 million, down 10.5% from the last quarter. Additionally, net cash flow from operating activities decreased 28.6% year-over-year to $56.70 million. As of March 31, 2024, Shift4’s long-term debt was $1.75 million, with total liabilities of $2.51 billion.
High rating
In terms of non-GAAP forward P/E, FOUR is trading at 20.10x, which is 87.5% higher than the industry average of 10.72x. Similarly, its forward Price/Book multiple of 7.99 compares unfavorably with the industry average of 1.07. Additionally, the stock’s forward EV/EBIT ratio of 21.96x is 101.5% higher than the industry average of 10.90x.
Weak profitability
FOUR’s trailing 12-month gross profit margin of 26.79% is 55.3% lower than the industry average of 59.92%. Likewise, its trailing 12-month EBIT and net income margins of 6.90% and 3.38% are comparable to the industry averages of 23.13% and 23.18%, respectively. Additionally, the stock’s trailing 12-month leveraged FCF margin of 10.74% is 38.6% lower than the industry average of 17.49%.
POWR Ratings Reflect a Weak Outlook
FOUR’s poor prospects are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted optimally.
Our proprietary rating system also evaluates each stock across eight distinct categories. FOUR has a grade of D for Value and Quality, which is consistent with its extremely high valuation and lower profit margins. Additionally, it has a grade of D for Stability. FOUR’s 24-month beta of 1.70 justifies the Stability grade.
Inside the Technology – Services In the sector, FOUR is ranked 68th out of 79 stocks.
In addition to the above, we also awarded FOUR ratings for Growth, Momentum and Sentiment. Get all FOUR ratings Here.
Bottom line
The fintech industry is extremely competitive, often pushing companies to lower prices to maintain market share and profitability. For Shift4 Payments, this competitive environment could present a challenge, especially in maintaining healthy profit margins.
While the U.S. economy and labor market currently appear to be robust, defying previous expectations, a recession could significantly impact consumer spending in industries where Shift4 has significant operations, such as travel, hospitality, and entertainment.
Given FOUR’s recent below-expected financial results, high valuation, weak profitability and poor growth prospects, it may be wise to avoid investing in this stock.
Actions to Consider Instead of Shift4 Payments, Inc. (FOUR)
Given its uncertain near-term outlook, the odds of FOUR beating expectations in the weeks and months ahead are slim. However, there are plenty of industry peers with much more impressive POWR ratings. So, consider these three A (Strong Buy)-rated stocks from Technology – Services sector instead: Leidos Holdings, Inc. (LDO-S), RADCOM Ltd. (RDCM), and Crexendo, Inc. (CXDO).
To explore more A- and B-rated technology services stocks, Click here.
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FOUR stock was trading at $72.85 per share on Wednesday afternoon, down $0.70 (-0.95%). Year-to-date, FOUR is down -2.00%, compared to a 16.76% gain in the benchmark S&P 500 index over the same period.
About the Author: Shweta Kumari
Shweta’s deep interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make informed investment decisions. Moreover…