The bulls seem to be back this year. Although there is much uncertainty regarding the rate hikes and other macro challenges, growth stocks have been in great shape so far. TSX tech stocks, on average, have soared a nice 30%, while Canadian payment processing stock Nuvei (TSX: NVEI) has gained a massive 70% in 2023.
What’s next for NVEI?
NVEI is still down 60% from its 52-week high. However, it offers handsome growth prospects for long-term investors. If we see a constructive environment on the inflation front and the company materializes its guidance, NVEI stock will likely keep the momentum.
NVEI was one of the biggest wealth creators of 2021. The stock skyrocketed from $50 odd levels to $190 in just a matter of a few months amid its rapid growth. However, its towering valuation could not sustain the rate-hike pressures and an activist short report.
Nuvei is an $8 billion software company that provides payment processing platforms. It has a diversified revenue base and operates in multiple verticals like e-commerce, regulated sports betting, and cryptocurrency platforms. Nuvei earns its revenues by charging transaction fees to merchants. It also earns from value-added services like analytics and insights to merchants. Nuvei has a scale with its operations in over 200 markets that support approximately 150 currencies.
Solid financial growth and guidance
Nuvei saw its revenues grow by 50%, compounded annually since 2020. The surge early during the pandemic was quite expected, as people moved to online shopping, which formed a significant chunk of its revenues. In 2022, the e-commerce segment brought in almost 89% of its total volume.
Note that its free cash flows have almost tripled since 2020.
Apart from steep revenue growth, the superior margin is one key highlight of Nuvei. It reported an 80% gross margin, which is in line with its long-term average. The operating margin was 22% last year, trending lower from 2021 largely due to higher costs.
However, the company has given quite an upbeat outlook for the long term. It expects over 20% annual revenue growth year over year for the foreseeable future. For 2023, its revenues are forecasted to be around US$1.4 billion, marking a handsome 50% growth year over year. Management aims to achieve over 50% adjusted operating margin in the long term. As earlier stated, Nuvei could see massive value creation if it materializes this guidance.
The Foolish takeaway
Although NVEI stock is trading much lower than its peaks, it does not look cheap from a valuation perspective. It is trading 100 times earnings and eight times 2023 revenues.
If the interest rate-hike cycle extends longer, richly valued names like NVEI might see a disproportionate impact. But note that NVEI has almost always traded at a premium and indicates investors’ expectations of superior growth. Nuvei is a fundamentally strong name driven by its solid financial growth and stellar margins. However, one should have a large risk appetite to stomach its high volatility.
