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Why Nuvei (TSX:NVEI) Stock Surged 65% in August But Markets Stayed Flat

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Tech stocks generally outperform broader markets because of their superior financial growth. But Canada’s fast-growing fintech company Nuvei (TSX:NVEI) has absolutely thrashed TSX stocks at large this year. It gained 65% in August while markets gained a mere 1.5%. So far in 2021, Nuvei has soared 150%.

What pushed NVEI stock to record highs

The last few weeks were quite an eventful period for Nuvei. In late July, Nuvei adopted the Alipay+ solution that connected global merchants to more e-wallet users. That also made cross-border payments easier for merchants.

Its better-than-expected second-quarter results gave the stock a significant surge last month. Its revenues for the quarter increased 114% to US$178.2 million. Apart from stellar top-line growth, investors cheered the stock because of its expanding profit margins.

Nuvei also completed its acquisition of Mazooma last month. The acquisition is expected to remarkably expand the company’s payment option portfolio south of the border.

Driven by strong performance in Q2, Nuvei management released upbeat guidance for 2021. It expects US$700 million in revenues this year, representing a striking 86% growth against 2020. Note that the revenue guidance does not include the contributions from its recent acquisition of Simplex. So, the actual 2021 revenue figure will likely be higher than the guidance.

For those who don’t know, Nuvei is a $22.5 billion payment technology company. It charges transaction fees to merchants for providing a payment gateway. In addition, it makes revenues from value-added services like analytics and insights to merchants as well.

Nuvei growth prospects

Nuvei provides payment gateways for a range of verticals from regulated online gaming to online retail and financial services to online marketplaces. Among the wide array, online retail and marketplace offer huge growth potential, with these markets collectively valuing more than US$13.3 trillion.

What differentiates Nuvei from peers is its single integrated platform that helps merchants accept more forms of payments in more currencies and in more markets. Nuvei’s payment platform can be tailored to merchants’ unique requirements, facilitating longer customer relationships and recurring revenues.

Also, even if tech is an industry with low barriers for new entrants, Nuvei plans to specialize in complex verticals with high barriers to entry. The company expects revenue growth of 30% compound annual growth rate in the medium term.

Nuvei stock performance and valuation

Nuvei priced its initial public offering (IPO) at $26 and started trading on the TSX in September last year. That represents a massive 530% capital appreciation in less than a year. It has been unstoppable this year and has been making fresh highs for the last several months.

After the rally, NVEI stock is trading 30 times its 2021 revenues and is expensive from traditional valuation measures. However, tech stocks generally trade at stretched multiples because of the above-mentioned reasons. And for Nuvei, the growth story became more pleasing this year, driven by its accretive acquisitions, superior quarterly performance, and upbeat guidance.

Nuvei’s scale, expertise in complex, high-growth verticals, and diversified revenue base should play well for its financial growth in the next few years. As a result, the stock will likely continue to outperform broader markets in the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Vineet Kulkarni has no position in the companies mentioned.

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