In March, bank stocks plunged after the three U.S. banks collapsed and Switzerland’s Credit Suisse was bailed out. While the overall stock market fell, global payments platform Nuvei (TSX: NVEI) stock surged 40.9% on the back of strong earnings and outlook. The company’s volumes and revenue grew on the back of e-commerce volumes, but its margins fell due to the cryptocurrency decline. Also, Canada’s central bank paused interest rate hikes, attracting investors towards growth stocks.
Is Nuvei stock a buy at its current valuation?
Nuvei stock momentum in the last two years
This fintech stock, which launched its initial public offering in the 2021 tech and crypto bubble, is having a reality check. First, it lost 80% value in the tech bubble burst of 2022. After bottoming out in December, it surged 60% year to date, as tech stocks recovered partially. And now the stock is seeing corrections as the U.S. data shows signs of a recession.
The U.S. manufacturing and service sector showed weakness in March, and job openings dropped to their lowest level in two years. The accelerated interest rate hike of 4.5% in 12 months is seeping into the economy and slowing growth.
While there is limited data from less than three years of public operation, it is clear that the stock is sensitive to macro weakness. Its revenue depends on transaction volumes, and 89% of this volume comes from e-commerce. A recessionary environment reduces consumer demand and impacts the retail sector. The fear of a recession in the United States pulled Nuvei stock down 6.4% in the first week of April, but it is still 58% up year to date.
Is Nuvei stock a buy today?
Nuvei has $752 million in cash reserve sufficient to fund losses and any new acquisitions. Moreover, the company has recently acquired Paya for its integrated payments solutions. This acquisition will open up new non-cyclical verticals like utilities and government for Nuvei.
Nuvei aims to achieve a 30% revenue growth and a 50% operating margin in the long term through organic growth and strategic acquisitions. Unlike its peers, Nuvei did not go on an acquisition spree or raised too much equity capital to dilute shareholders’ value.
Its current growth momentum could see a fallback in the short term, as weak economic data affects growth stocks. I expect the stock to fall 10-18% to $46 in the next bear momentum. That is the time to buy the stock. Nuvei has the fundamentals to ride the recovery rally in the second half. While I do not expect the stock to reach its tech bubble peak of over $170, the stock could double in the next three to four years, as the economy recovers.
Three growth catalysts that make me bullish on this tech stock
Nuvei has three growth catalysts that could drive the stock price upwards during the economic recovery.
E-commerce and gaming: Nuvei’s primary business is payment technology for e-commerce companies. While it is broadening across verticals, none has the scale to replace e-commerce in the medium term. As the economy recovers and technology adoption increases, e-commerce momentum will grow, and Nuvei will grow gradually through the trend.
Geographical outreach: Nuvei earns through commission on every transaction happening on its platforms. It has scaled its operations in Asia-Pacific and accelerated growth in Latin America. The revenue from these operations could partially offset weakness in American markets. Moreover, increasing exposure to developing markets with higher growth rates could make Nuvei a preferred platform for cross-border transactions.
Cryptocurrencies: While transactions are its primary source of revenue, fluctuations in cryptocurrency prices impact Nuvei’s profits. Inflation and a weak economy impact crypto prices, but a strong economy inflates crypto prices. Nuvei is a good stock to get crypto exposure.
These secular trends are here to stay, and that will drive Nuvei stock in the long term. It is a stock to buy below $50 per share and hold for five years for good returns.
