Up Over 120%: Is There More Upside to Nuvei (TSX:NVEI)?

Investors with over two years of investment horizon can accumulate the stock for superior returns, despite its expensive valuation.

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Nuvei (TSX:NVEI) has delivered a stellar performance this year, with its stock price rising around 120% and comfortably outperforming the broader equity market. Its impressive performance in the first six months, strategic acquisitions, and favourable market conditions had driven its stock price higher. The massive surge has driven the company’s valuation into expensive territory. So, let’s examine whether buying opportunities still exist after such an enormous surge. First, let’s look at its performance in the first six months of this year.

Nuvei’s recent performance

During the first six months, Nuvei’s top line grew by 97% to $328.7 million. Amid the rising popularity of online shopping, digital payments are becoming popular, benefiting the company. Amid favourable market conditions and its investment in and expansion of its direct distribution channel, its total volumes more than doubled across its four regions, driving the top line higher.

Further, its adjusted EBITDA increased by 105% to $115.7 million due to improved revenue growth, higher operating margin, and lower interest expenses. Its adjusted EPS came in at $0.79, representing impressive year-over-year growth of 172.4%. Also, the company generated $139 million of operating cash flows, increasing its cash holding to $533.7 million by the end of the second quarter.

Nuvei’s growth prospects

Nuvei’s addressable market is expanding amid the ongoing transition to e-commerce. The company is launching innovative products to expand its customer base and drive volume. Apart from organic growth, the company has also undertaken several strategic acquisitions to expand its geographical presence and strengthen its competitive positioning.

So far this year, Nuvei has acquired Discover Global Network, Mazooma Technical Services, and Simplex. These acquisitions have broadened Nuvei’s product offering, expanded its geographical footprint, and strengthened its competitive position in the growing online gaming and sports betting market. The company recently signed an agreement to acquire Paymentez, which could expand its presence in Latin America.

Amid the healthy growth prospects and strong performance in the second quarter, Nuvei’s management had raised its guidance for the third quarter and this fiscal year. The management projects its 2021 revenue to come between $690 and $705 million, while its adjusted EBITDA could fall within $295-$305 million. Also, its total volume could reach $91 billion. Further, the management expects its volume and revenue to grow at a CAGR of over 30% in the medium term, while adjusted EBITDA margin could grow at a CAGR of above 50% in the long term. So, Nuvei’s outlook looks healthy.

Bottom line

Amid the recent surge, Nuvei’s valuation has become expensive. Currently, its forward price-to-sales and forward price-to-earnings multiples stand at 23.4 and 75.4, respectively. Despite its expensive valuation, analysts are bullish on the stock. Of the 13 analysts, 11 have issued a buy rating, while the remaining two have given a hold rating. Meanwhile, the consensus price target stands at $158.99, representing a 7.5% fall from its current levels.

Nuvei’s stock price has appreciated by over 420% since going public in September last year. Given the massive surge and the volatility in the broader equity markets, I believe Nuvei could underperform in the near term. However, investors with over two years of investment horizon can accumulate the stock given its healthy outlook.

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 recommends Nuvei Corporation. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

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