SQ - The Most Undervalued Fintech: Mini Deep Dive On Shift4 Payments

2024-04-19 12:34:21 ET

Summary

• Shift4 Payments, Inc. looks very undervalued relative to CY2024 and CY2025 consensus estimates.
• The company already provided strong CY2024 guidance of 38-44% YoY revenue growth and 38-47% EBITDA growth, yet the stock currently trades at just 10x CY2024 EV/EBITDA, much cheaper than its peers.
• International expansion is just starting, providing a massive growth opportunity over the next 3–5 years.
• Shift4 Payments is a potential acquisition target which could fetch a 50% premium from current prices, especially after Nuvei was acquired a couple of weeks ago at 13x EV/EBITDA with less than half the expected growth rates.

It was surprising to see Shift4 Payments, Inc. (FOUR) go public during the summer of 2020, given its exposure to many industries affected by the Covid pandemic, including travel, hospitality, large-scale events, etc. However, looking back, the $23 IPO price was clearly a buying opportunity for anyone who could foresee the economic rebound.

Although FOUR's stock price has not been a big winner over the past few years ( still down -38.5% from the April 2021 all-time highs ), the company has continued to execute very well.

Just to put things into perspective, FOUR did $767 million of revenues in CY2021, and now they're forecasting almost 5x that number for CY2024… $3.74 billion of revenues, including network fees and $1.325 billion, not including network fees.

After the IPO, I kept Shift4 on my watch list and tried owning it in 2021, but I never had a large position because of the valuation. After the big selloff in the second half of 2021, I began building my position in early 2022 and averaged down into the summer 2022 lows… FOUR actually dipped below $30 for a few hours on July 13, 2022....

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