Bright Outlook for Four Stock
The selling of technology and growth stocks this year has been difficult to stomach, but for investors with long-term investment playbooks, that selling has presented plenty of opportunities.
At a time like this, accumulating shares of solid companies in growth areas makes sense. For investors who can accept short-term volatility, this strategy has a good chance of returning above-average long-term capital appreciation.
I see an excellent risk/reward opportunity in Shift4 Payments Inc (NYSE:FOUR). The provider of payment infrastructure has been generating solid and consistent financial growth. Moreover, Shift4 Payments stock trades at a reasonable valuation.
While the bear market in technology stocks has driven FOUR stock down by 14.7% this year, the stock’s performance has been better than that of the Nasdaq and the S&P 500. Shift4 Payments stock has rallied by 62% over the last three months.
Shares of Shift4 Payments Inc traded as high as $104.11 in April 2021, when the COVID-19 pandemic drove up the demand for contactless payments. The subsequent selling was triggered by concerns that workers returning to offices after the pandemic would lessen the demand for Shift4 Payments Inc’s solutions.
My view is that the market is underestimating FOUR stock.
Chart courtesy of StockCharts.com
Significant Market Potential for Shift4 Payments Inc
Shift4 Payments is focused on points of purchase. The company’s payment solutions can be found in many sports and entertainment venues in North America, including those for college sports and professional leagues. The company also has its technology in other point-of-sale, mobile commerce, and loyalty program systems. (Source: “Q2 2022 Shareholder Letter,” Shift4 Payments Inc, August 4, 2022.)
The digital payment market’s potential is massive, especially as the economy reverts back to normal.
Grand View Research estimates that the global digital payment market’s size was around $68.1 billion in 2021 and could grow at a compound annual growth rate (CAGR) of 20.5% to about $364.2 billion by 2030. The U.S. digital payment market is expected to expand at a CAGR of 18.2% to $92.8 billion by 2030. (Source: “Digital Payment Market Size,” Grand View Research, Inc., last accessed September 27, 2022.)
Shift4 Payments Inc grew its revenues in the past three consecutive years as the economy, including sports and entertainment venues, reopened. Its revenues increased by 148% from $560.6 million in 2018 to a record $1.4 billion in 2021.
(Source: “Shift4 Payments, Inc,” MarketWatch, last accessed September 27, 2022.)
I expect Shift4 Payments Inc’s revenue growth rate to begin to normalize as it grows its revenue base. Analysts estimate that the company will deliver revenue growth of 47.2% to $2.0 billion this year, followed by 36.2% growth to $2.7 billion in 2023. (Source: “Shift4 Payments, Inc. (FOUR),” Yahoo! Finance, last accessed September 27, 2022.)
This implies that the company has an attractive forward multiple of 1.4 times its consensus 2023 revenue estimate. Compared to the multiples of other companies, Shift4 Payments Inc looks cheap at its current price.
Based on its adjusted earnings, Shift4 Payments is profitable.
The company is expected to record earnings growth of 198% to $1.28 per diluted share this year and 53.1% to $1.96 per diluted share in 2023. These estimates imply a reasonable valuation of 24.7 times the company’s consensus 2023 earnings-per-share (EPS) estimate, which means there’s more runway for share-price gains. (Source: Yahoo! Finance, op. cit.)
Shift4 Payments Inc has been attracting the interest of institutional and insider investors. About 300 institutions hold the majority of Shift4 Payments stock, and insiders added 212,249 shares to their investment portfolios over the last six months. (Source: Yahoo! Finance, op. cit.)
Given the company’s projected financial growth, its valuation is compelling. The slowing economy will likely have a negative impact on Shift4 Payments Inc’s revenues, but longer term, the prospects for FOUR stock look positive.