EVO Payments Inc: A High-Prospects Tech Stock for Your Portfolio

EVOP stockEVO Payments Inc to Reap Benefits from Global Payment Space

The global mobile payments space is massive, plus it’s expected to expand at an accelerating rate. Merchants from small rural villages to large metropolitan areas need electronic payment solutions to transact business. An intriguing play on the bullish tailwinds for this sector is EVO Payments Inc (NASDAQ:EVOP), a provider of payment technology and services to over 50 markets in 11 countries.

EVO Payments stock offers investors a high-risk/reward opportunity that could return above-average long-term price appreciation.

With a market valuation of $1.0 billion, EVOP stock is in a sweet spot for growth.

EVOP has more than doubled from its March low of $10.12, but it’s still down 6% this year and 10% over the past year.

The onslaught of the pandemic has negatively impacted commerce worldwide. This is critical, as EVO Payments Inc generates part of its revenues from transactions.

My bullish view is that EVOP stock will rally as the pandemic fades and global commerce reignites.

A look at the chart shows EVO Payments stock breaking down during the March sell-off.

EVOP stock recovered its pre-COVID level channel of $30.00, but subsequently failed to hold, breaking below trendline support and its 50-day moving average.

Chart courtesy of StockCharts.com

At this point, EVO Payments Inc is drifting in a tight sideways channel just below the 50-day moving average of $26.11. The intensifying of its relative strength could drive EVOP stock back towards $26.00 to $30.00. Channel support is found around $22.00.

Rising Earnings Estimates Support Bull Case for EVOP Stock

A look at the five-year revenue picture shows encouraging growth from 2016 to 2018, prior to a 14% contraction in 2019.

Fiscal Year Revenue (Millions) Growth
2015 $355.5 N/A
2016 $419.2 17.90%
2017 $504.8 20.40%
2018 $564.8 11.90%
2019 $485.8 -14.00%

(Source: “EVO Payments, Inc.,” MarketWatch, last accessed October 8, 2020.)

And given the impact from the pandemic, EVOP is expected to see its revenues fall to a consensus $452.7 million this year. The expected decline isn’t that bad, especially since EVO Payments is expected to come back with growth of 15.5% to approximately $523.0 million in 2021. (Source: “EVO Payments, Inc. (EVOP),” Yahoo! Finance, last accessed October 8, 2020.)

At the same time, EVO Payments Inc produced positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in five straight years. This included a five-year high of $121.5 million in 2019, up 89.8% in a year when revenues declined.

Fiscal Year EBITDA (Millions) Growth
2015 $99.0 N/A
2016 $104.4 5.40%
2017 $119.3 14.30%
2018 $64.0 -46.30%
2019 $121.5 89.80%

(Source: MarketWatch, op. cit.)

EVO Payments is currently reporting losses based on generally accepted accounting principles (GAAP), but the loss narrowed from 2017 to 2019.

Fiscal Year GAAP Diluted EPS Growth
2015 $1.90 N/A
2016 $2.77 45.30%
2017 -$2.33 -184.40%
2018 -$0.70 70.10%
2019 -$0.31 55.70%

(Source: MarketWatch, op. cit.)

On an adjusted basis, EVOP has attracted higher earnings estimates over the last 90 days.

EVO Payments Inc is profitable on an adjusted basis reporting $0.66 per diluted share in 2019. This is estimated to fall to a consensus $0.62 per diluted share this year as revenues decline.

The good news is that EVOP is expected to ramp up earnings to $0.79, going as high as $0.96 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

Free cash flow (FCF) has drifted between positive and negative for the last five years, but it should steady as EVOP generates more consistency.

Fiscal Year FCF (Millions) Growth
2015 -$22.9 N/A
2016 $1.1 104.60%
2017 -$33.8 -3335.50%
2018 $155.3 553.30%
2019 -$2.2 101.40%

(Source: MarketWatch, op. cit.)

Analyst Take

EVO Payments Inc should benefit from the rise in demand for payment technologies, especially in the world’s developing regions.

The pandemic will eventually subside, and global commerce will re-energize and help to power shares of EVO Payments stock higher.