Will FOUR Stock Bounce Back?

Shift4 Payments, Inc. (NYSE:FOUR) didn’t receive much investor attention until recently despite have a 25 year history as a financial technology payment processor.

One reason it stayed under the radar so long was that it didn’t in fact go public until its debut on the New York Stock Exchange in June 2020, at which time it raised $345 million.

Shift4 offers companies a payment gateway integration that is compatible with various different POS systems and e-commerce sites.

A key reason the company has succeeded in a highly competitive payments landscape is that the customer value proposition leads with a security first focus, meaning it incorporates advanced encryption and tokenization technologies so transactional information is better protected and fraud risk is minimized.

Innovation is also to the forefront of its selling points and so R&D spending remains a large portion of overall costs that permit the introduction of new features and functions requested by customers. Partnerships and acquisitions have also been crucial to the firm’s growth, particularly in extending the firm’s global footprint.

Although the firm seems like a slow and steady grower, it’s enjoyed its fair share of buzz, such as when news broke that Amadeus and Fiserv were in a bidding war to acquire it. Unfortunately for shareholders, the deal didn’t pan out and the share price plunged soon afterwards. FOUR share price remains under water year-to-date so what’s on the horizon for it and can it rebound?

The Inflection Point Came In 2020, Here’s Why

Shift4 Payments shareholders rode the upsurge wave of growth stocks in 2020-21, driven mainly by the massive shift towards electronic payments and e-commerce adoption.

The pervasive demand for contactless and online payment platforms acted as a strong tailwind for Shift4 Payments and FOUR share price followed the firm’s strengthening financial statements by rising north of $100 per share.

Remarkably at a time when case reports increasingly spiked, merchant transaction volume increased. Shift4 processed more than 19.7 million payment transactions back in June 2020, a 164% increase from the March lows. Transaction volume also rose over the same period versus the year prior. 

Furthermore, 2021 has seen an accelerated recovery in transaction volumes, with seven of the eight highest volume days in Shift4’s history till then occurring during the last two weeks of February 2021.

With its secure online payment gateway, Shift4 Payments won business and market share. And via the company’s product innovations, merchants were able to set up e-commerce channels rapidly while in tandem adding secure payment options. 

In light of the firm’s multi-segment customer base, which extended to a variety of disparate sectors spanning from hospitality to retail, and e-commerce, a natural diversification of revenue streams formed and in turned strengthened the business model.

Shift4’s Prospects Look Promising

The last reported quarter results demonstrated significant year-over-year growth as end-to-end payment volume surged by 55% to $32.1 billion and gross revenue increasing by 31% to $705.4 million.

The company’s fourth quarter 2023 end-to-end payment volume was more than 5x higher than levels seen in the same period in 2019.

Gross revenue, less network fees, grew 35% to $269.3 million and gross profit rose by a solid 33% from the year-ago quarter to $184.6 million.

The company achieved 44% growth in adjusted EBITDA, hitting $136.1 million. A healthy increase in adjusted free cash flow was also reported, with gains of 33% year-over-year amounting to $75.3 million.

Management believes the positive momentum will persist throughout the year and anticipates end-to-end payment volume, gross revenue, and gross revenue less network fees this year will all be strong. In short, Wall Street should not expect any major surprises if the top brass are correct in their projections.

End-to-end payment volume is expected of $167 billion, or 53% year-over-year growth to $183 billion and 68% year-over-year growth for the current year. Plus, management expects to achieve an adjusted EBITDA of $635 million to $675 million, equating to a significant level of growth on a year over year basis. 

As the company remains acquisitive, expect international expansion to grow. For example, the purchase of Finaro, a cross-border eCommerce platform and bank is likely to drive expansion into international markets while SpotOn Technologies, Inc.’s sports and entertainment division will most likely accelerate growth within the sports and entertainment vertical.

Is Shift4 Payments Undervalued?

In spite of the recent price decline, Shift4 is valued at 17x non-GAAP forward earnings, which seems pricey compared to its rivals. Nonetheless, this is about 75% below the firm’s 5-year average of 68.69x.

Notably, the stock is currently trading at 1.03x forward sales, which is roughly 60% lower than the industry average.

Moreover, according to the consensus estimate of 17 analysts, the stock’s $89.01 price target indicates that it has the potential to rise by as much as 44.3%.

Will FOUR Stock Bounce Back?

While the online payments market is becoming increasingly competitive with the presence of dominant platforms like PayPal, Shift4 has been flying under the radar and is gradually creeping up the market share ladder.

Shift4 has suited up well with accelerated business momentum over the last few years, and there are no signs from management that the pace should slow anytime soon.

Of the 17 analysts covering the stock, 14 rate it as a Buy at this time.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.