The equity markets have been witnessing healthy buying since the beginning of November. The improvement in investors’ sentiments amid easing inflation and a pause in interest rate hikes drove the equity markets higher, with the S&P/TSX Composite Index rising 7.4% since the beginning of last month.
Meanwhile, Nuvei (TSX: NVEI) has outperformed the broader equity markets by delivering over 58% returns during the period. Its solid third-quarter performance and raising of 2023 guidance have driven the stock price. Despite the recent increase, it still trades 48% lower than its 52-week high. So, let’s assess whether the stock is still a buy at these levels by looking at its third-quarter performance and growth prospects.
Nuvei’s third-quarter performance
For the September-ending quarter, Nuvei reported revenue of $304.9 million, representing a 55% increase from the previous year. The strong performance from the global commerce and business-to-business, government, and independent software vendors segments drove its topline. However, its revenue from small and medium-sized businesses declined 4%, offsetting some of the increases. Meanwhile, the company processed $48.2 billion of transactions during the quarter, marking a 72% increase year over year. Of the total volume, e-commerce contributed 88%.
Despite the topline growth, the payment processing company’s net losses stood at $18.1 million compared to a net profit of $13 million. Higher SG&A (selling, general, and administrative) costs and increased interest expenses weighed on its earnings. However, removing special items, its adjusted net income stood at $56.8 million, a 9% decline from the previous year’s quarter. Meanwhile, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew 36% to $110.7 million. Also, its EBITDA margin expanded by 40 basis points to 36.3%. Further, the company strengthened its financial position by lowering its leverage ratio by 0.2 to 2.6. Now, let’s look at its growth prospects.
Nuvei’s growth prospects
Amid the growth in online shopping and development of innovative products that offer faster and more convenient transactions, digital transactions are becoming popular. On the back of this transition, analysts are projecting the digital payment market to grow in double digits for the remainder of this decade. Meanwhile, Nuvei is developing innovative products to strengthen its digital capabilities, increasing its APM (alternative payment methods) portfolio, and expanding its geographical footprint to drive growth.
The company recently opened a new office in Shanghai, China, to expand its presence in the Asia-Pacific region. So, its growth prospects look healthy. Following its solid third-quarter performance and expectation of the momentum continuing in the fourth quarter, Nuvei’s management has raised its 2023 guidance. The midpoint of its new revenue and EBITDA guidance represent growth of 40% and 22.7%, respectively. Further, management hopes to grow its topline at a 15%–20% rate in the medium term while expanding its adjusted EBITDA margin to over 50% in the long term. So, the company’s long-term outlook looks healthy.
Investors’ takeaway
Despite a massive increase in its stock price, Nuvei trades at NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples of 2.4 and 11.2, respectively. Given its growth prospects, the company’s valuation looks cheap. Further, management has also announced a dividend of $0.10/share. Considering all these factors, I believe Nuvei would be an excellent buy at these levels.
