Inflation is on everyone’s mind now. Canada reported 3.4% inflation last month, while the U.S. has reported 5% in its latest figures. Once the economy reopens and consumer spending surges back, Canada’s inflation rate could surpass the U.S. swiftly.
While central bankers are not worried about this, consumers and investors should certainly pay attention. If inflation escapes government control, we could face much higher prices and wealth erosion in the years ahead. One way to protect yourself is to invest in stocks of companies that can pass the inflation onto their customers.
Payment processor Nuvei (TSX: NVEI) is a great example. The stock has more than doubled in value since going public. However, much of that growth was driven by e-commerce spending during the pandemic. Now, the stock could be an effective safe haven for investors concerned about inflation.
Processing payments
Payment processors extract a fee from every transaction that passes through their network. This means that if the merchants on their network raise their prices, transaction volumes rise, and Nuvei’s top line expands. In other words, the company transmits inflation, which makes it an ideal hedge.
Besides this aspect, Nuvei stock also has greater potential for growth.
As a non-bank payment processor, Nuvei gives investors exposure to the burgeoning payments, e-commerce, and cryptocurrency space.
As online shopping continues to see enormous growth, the net effect has been an 80% increase in the total transaction volume that Nuvei handles on its payment platform. In addition to offering a payment platform to the e-commerce sector, its payment technology platform is also attracting transaction volume in the gambling and sports betting industries.
Revenue growth
Nuvei is currently permitted to offer payments service to all regulated sports betting operators. The company makes money by charging transaction fees on providing a payment gateway. In the first-quarter, the company pulled an 80% increase in revenues that totaled $150 million. Given the strong demand for its payment service, the company expects revenue of between $610 million and $640 million in 2021.
Nuvei has also continued to pursue inorganic growth through strategic acquisitions. In the last six months, it has completed four acquisitions. The latest addition, crypto payment firm Simplex, is poised to offer significant growth opportunities in the burgeoning cryptocurrency sector. An integrated payment platform including multiple currencies and cryptocurrencies and in more jurisdictions will be the catalyst driving Nuvei bottom line to new heights.
After a recent pullback, Nuvei is still trading at a premium with a price-to-sales multiple of 26 and a price-to-book multiple of 7.83. However, a premium valuation is expected of a high-growth stock with tremendous potential.
Bottom line
Inflation has a devastating impact on the economy and the stock market. Investors could lose purchasing power without realizing it. However, companies like Nuvei transmit inflation rather than suffer from it. This makes it a potential safe haven during an inflationary cycle. Keep this on your radar as we see how inflation shapes up in the year ahead.
