NVEI:CC - Better Buy in February 2024: Nuvei Stock vs. Canadian Utilities Stock

2024-02-05 10:30:00 ET

Nuvei ( TSX:NVEI ) and Canadian Utilities ( TSX:CU ) are two stocks that couldn’t be more dissimilar. On the one hand, we have a fintech upstart that is trying to make headway in the competitive payments industry. On the other hand, we have (as the name implies) a Canadian utility company that operates in one of the most mature and established industries on the planet. The difference couldn’t be more stark.

It’s precisely for this reason that Nuvei and Canadian Utilities are worth comparing. These stocks perfectly represent different investing styles — namely, growth investing and dividend investing. Although you’d never hold these stocks for the same reasons as one another, you may end up owning both if you invest in TSX index funds. So, they are worth comparing. In this article, I will explore both Nuvei and Canadian Utilities in detail so that you can decide which stock is right for you.

The case for Nuvei

Nuvei is classed as a growth stock, and, as you might expect, it has … high growth — at least when it comes to revenue. In its most recent quarter, NVEI delivered the following:

• $48.2 billion in payments volume, up 78%
• $305 million in revenue, up 55%
• $110 million in earnings before interest, taxes, depreciation, and amortization (EBITDA), up 36%
• -$0.14 in earnings per share, down from a positive figure

As you can see, the earnings growth was negative, but the high top-line growth points to the possibility of better results in the future. The company claims that its net loss in the third quarter (Q3) was related to it drawing down money from its revolving credit facility in the period. If it does not draw down more funds going forward, then it should be able to start growing its earnings as well as its revenue.

NVEI’s three-year average growth rates are quite good. Over the last three years, the company has grown its revenue, EBITDA and EBIT (earnings before interest and taxes) at the following compounded annual (CAGR) rates:

• Revenue: 47%.
• EBITDA: 19.4%.
• EBIT: 19.9%.

That’s phenomenal growth. Even if the company’s revenue growth decelerates, it should eventually be a much larger company than it is today. As an extra plus, the company’s stock is not even that expensive for a growth stock, trading at 14 times earnings.

The case for Canadian Utilities

The case for Canadian Utilities rests on its stability. Over the last 10 years, the company’s revenue and earnings have grown only slightly. However, the 17% profit margin and 82% payout ratio are adequate to ensure CU’s dividends, at least, keep coming in over the long term. Speaking of which, CU stock has a 5.86% dividend yield , which means that you’ll collect $5,860 per year if you invest $100,000 in the stock, provided the dividend isn’t cut.

Will it be cut?

It doesn’t look likely. An 82% payout ratio means a company’s dividends are less than its profit, and CU’s status as a regulated utility ensures a steady flow of revenue. On the whole, CU should work reasonably well as an income investment.

Foolish takeaway

Given the choice, I’d prefer to invest in Canadian Utilities rather than Nuvei. I don’t own either stock, but Nuvei is much less proven, having only turned profitable recently. That doesn’t mean it won’t perform well; it’s just that it’s hard to come up with a specific forecast of its future.

The post Better Buy in February 2024: Nuvei Stock vs. Canadian Utilities Stock appeared first on The Motley Fool Canada .

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nuvei. The Motley Fool has a disclosure policy .

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