Canadian fintech stock Nuvei (TSX:NVEI) saw a massive selloff after its first-quarter (Q1) 2023 earnings release on May 10. Although the company reported a net loss for the quarter, the company maintained its long-term growth outlook. After a decent recovery this year, the steep correction must have played a spoilsport for Nuvei investors.
NVEI stock loses almost 17% in two days post-Q1 release
Nuvei stock was on a downslide till the beginning of 2023, as higher inflation and rising rates weighed on growth stocks. However, as the rate-hike pace softened this year, it has bounced back significantly. After accounting for the recent correction, NVEI stock is still sitting on a handsome 42% gain for the year. In comparison, TSX tech stocks have gained 35% in the same period.
Canadian payment processor Nuvei had an amazing rally in 2021. But it soon waned on a short report and macroeconomic challenges.
For the first quarter of 2023, it reported total revenues of US$257 million — a decent 20% increase year over year. Nuvei plunged into a loss in Q1 due to the one-time cost of the Paya acquisition. However, what particularly spoiled the mood on the street was the company’s lower revenue outlook for Q2 2023. The management expects total revenues of US$304 million, below analysts’ estimates. However, this still represents a 44% increase compared to Q2 2022.
Nuvei lowers Q2 guidance but keeps long-term outlook intact
Nuvei’s long-term debt more than doubled in Q1 2023 due to the Paya acquisition. Now, its leverage ratio comes to around 6.6, which could concern investors.
Nuvei has a spread-out revenue profile and caters to multiple segments, such as e-commerce, regulated sports betting, and cryptocurrency exchanges. It makes money by charging transaction fees to merchants. Plus, it earns from providing value-added services like analytics and insights to its customers.
A looming economic downturn could weigh on growth stocks like Nuvei. Economists expect a recession, thanks to rapid rate hikes and record-high inflation. Growth stocks generally see an excessive impact when broader markets turn rough. So, we might see large swings again taking hold in growth stocks like NVEI.
However, Nuvei looks relatively well placed, given the company’s bullish guidance. The management expects over 20% revenue growth annually for the foreseeable future. Moreover, its adjusted operating profit margin is expected to remain over 50% in the long term. It could create handsome value in the long term if the guidance materializes.
Valuation and conclusion
On a valuation front, NVEI stock is currently trading at a price-to-sales ratio of five and does not look too overvalued. NVEI was substantially overvalued in mid-2021 and saw steep value erosion. But growth stocks generally trade at a premium and indicate investors’ higher growth expectations.
Lower Q2 2023 revenue guidance amid an expected economic downturn could weigh on the stock in the short term. But keeping the long-term guidance intact indicates management’s confidence and could bring respite for investors.
