Down 40% This Year, Is Nuvei Stock a Buy Today?

Given its growth potential and attractive valuation, long-term investors can start accumulating Nuvei to earn superior returns.

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Nuvei (TSX:NVEI) is a fintech company that helps clients facilitate acceptance of next-gen payment methods. It operates in over 200 markets, supporting 150 currencies and 634 APMs (alternative payment methods). In August, the company reported a subdued second-quarter performance and lowered its guidance for this year, making investors nervous. Besides, investors are worried about whether rising inflation will lead to further interest rate hikes, contributing to a sell-off in Nuvei. The payment processing company currently trades 41.2% lower for this year.

So, let’s assess whether the downward momentum could continue or if the sell-off provided any buying opportunities. First, let’s look at its second-quarter performance.  

Nuvei’s Q2 performance

In the second quarter that ended on June 30, Nuvei reported revenue of $307 million, a 45% increase from $211.3 million in the previous year’s quarter. New customer additions and growth in average revenue from existing clients drove its revenue. Also, it processed $50.6 billion in transactions during the quarter, representing a 68% increase from the previous year’s quarter.

Despite the top-line growth, the company’s net income declined by 67% to $11.6 million. The decline was mainly due to an increased finance cost of $31.3 million. Meanwhile, its adjusted EPS (earnings per share) fell 24% to $0.39. Also, it generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $95.9 million, a 19% decrease from the previous year’s quarter. Let’s now look at Nuvei’s near-to-medium-term outlook.

Nuvei’s growth prospects

Amid the longer-than-expected time lag in new businesses and its decision to end its relationship with one of its large customers, Nuvei lowered its guidance for this year. The company now expects its revenue to come in between $1.17 billion and $1.20 billion, with the midpoint representing a 40% increase from the previous year’s quarter. Its adjusted EBITDA could come in the $417–$432 million range, representing year-over-year growth of 22.3%.

Meanwhile, the long-term growth prospects of the payment processing company look healthy as the popularity of digital payments grows. Meanwhile, several market research firms are projecting double-digit growth for the next five years. The company is considering expanding its footprint and developing innovative products to meet market growth.

The payment processor recently opened a new office in China with an eye on expanding its footprint across the Asia-Pacific region. It has also made 36 releases this year and continues to expand its APM portfolio, thus allowing its customers to accept regionally popular digital payment methods. Further, the company has launched an artificial intelligence-powered data and analytics platform, which provides insights that could help its customers.

Amid the favourable environment and these growth initiatives, the company’s management projects its top line to grow at an annualized rate of 15–20% in the medium term. Besides, its adjusted EBITDA margin could cross 50% in the long run. So, the company’s long-term growth prospects look healthy.

Investor takeaway

The steep correction in Nuvei’s stock price has dragged its valuation down to attractive levels, with its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples at 1.6 and 8.1, respectively. Boosted by its strong cash flows, the company has reduced its debt levels and declared a quarterly dividend of $0.10/share.

With the concerns over global growth amid rising inflation, I suspect the company will be under pressure in the near term. However, given its long-term growth potential and attractive valuation, I believe investors with longer investment horizons could start accumulating the stock to earn superior returns.

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.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Nuvei. The Motley Fool has a disclosure policy.

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