Monday’s TSX breakout: This fintech stock is up 66% in 2023 with another 83% forecast
On today’s TSX Breakouts report, there are 42 stocks on the list of positive breakouts (stocks with positive price momentum), and six securities are on the list of negative breakouts (stocks with negative price momentum).
Discussed today is a soaring small-cap stock that is on the list of positive breakouts – Payfare Inc. (PAY-T). This fintech stock has risen 66 percent so far this year, and analysts believe the share price could continue to climb higher. The average one-year target rate implies a potential rate return of 83 percent.
A brief overview of Payfare is provided below which can serve as a springboard for further basic research when performing your own due diligence.
The company
Toronto-based Payfare is a fintech company whose clients include ride-sharing providers Uber Technologies Inc. ( UBER-N ) and Lyft Inc. ( LYFT-Q ) as well as food delivery provider DoorDash Inc. ( DASH-N ). The company’s technology enables gig workers to receive near-instant payment for their services. Earnings are transferred to gamblers’ digital Payfare bank accounts or Visa or Mastercard cards. Payfare accounts and cards are issued by the bank partners.
The company generates revenue from two main sources. Firstly, interchange fees, which are fees paid by merchants when a purchase is made with Payfare Visa or Mastercard. Second, Payfare earns revenue from bank fees such as ATM withdrawals.
Investment thesis
- Rapid revenue growth. Earnings totaled $1.2 million in 2017, $3.6 million in 2018, $6.3 million in 2019, $13.4 million in 2020, $41.97 million in 2021, and $129.9 million in 2022.
- Pivot point for the company with Payfare becoming profitable in the fourth quarter of 2022. The consensus profit per share is 34 cents in 2023 and 59 cents the following year.
- Increasingly active user base.
- Healthy balance.
Dividend policy
The company does not pay dividends to shareholders.
Quarterly earnings and outlook
After the market closed on March 22, the company reported record fourth quarter results.
Revenue came in at $38.4 million, up 131 percent year over year, in line with the consensus estimate of $39 million. Payfare reported record adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.6 million, up 248 percent year-over-year and in line with Street expectations.
This quarter was pivotal for the company with Payfare reporting a profit with earnings per share of 6 cents, three cents above the consensus estimate. The company reported record free cash flow of $5.4 million. The return on equity was 23.7 per cent. The number of active users broke the 1 million mark in the fourth quarter of 2022. At the end of the quarter, the company had $42 million in cash and no debt on its balance sheet.
The following day, the share price rose 11 percent on high volume.
- Management has identified several goals for 2023, including:
- Achieve revenue of between $185 million and $195 million, and adjusted EBITDA of between $21 million and $24 million.
- Expands the user base by between 25 percent and 50 percent.
- Develop new products.
- Cooperation with new sellers, who will diversify the customer base. Programs with Uber, Lyft, and DoorDash were launched in 2016, 2019, and 2020, respectively.
Analysts’ recommendations
This small-cap stock with a market capitalization of $331 million has a unanimous buy recommendation from five analysts.
The firms offering research coverage on the company are: Canaccord Genuity, Cantor Fitzgerald, Eight Capital, Keefe Bruyette & Woods and Raymond James.
Revised recommendations
Analysts’ target prices have been stable. So far this year, there have been no changes to the target prices.
Financial forecasts
The Street forecasts revenue of $195 million in 2023, up 50 percent from the $129.9 million reported in 2022, and rising to $254 million in 2024. Consensus EBITDA estimates are $24 million in 2023, up from a record 4 million dollars. reported in 2022, increasing to $38 million in 2024. The consensus earnings per share estimates are 34 cents in 2023 and 59 cents the following year.
Earnings forecasts for 2023 have increased in recent months. Three months ago, the 2023 consensus revenue, EBITDA and earnings per share estimates were $179 million, $23 million and 30 cents, respectively.
Valuation
According to Refinitiv, the stock trades at an enterprise value-to-sales multiple of 1.2 times the 2024 consensus estimate.
The average one-year target price is $13, which means the stock price could rise 83 percent over the next 12 months. Individual target prices are: $9 (from Cantor Fitzgerald’s Josh Siegler), $11, $12, $16 and $17 (from Eight Capital’s Adhir Kadve).
Insider Transaction Activity
So far this year, there has been no trading activity in the public market reported by insiders.
Map clock
Technical analysis is challenging given that the share has a very limited trading history. Shares in Payfare began trading on the Toronto Stock Exchange in March 2021.
During the short trading period, the share price has been quite volatile. The initial public offering (IPO) was $6. Just four months later, the share price climbed above $13, closing at a record high of $13.43 on July 14, 2021. However, over the next year, the share price was firmly in a downward trend, leading to lower highs and lower lows. By September 6, 2022, the share price fell to a record low close of $3.97 before stabilizing.
2023 has been a turning point for the share. Last month, the share price finally returned to the stock exchange listing. Year-to-date, its share price has risen 66 percent, making it the fifth-best performing stock out of 257 stocks in the S&P/TSX Small Cap Index.
Looking at key technical resistance and support levels, the stock faces an initial cap of resistance around $8. After that, there is overhead resistance around $10. Looking to the downside, there is strong technical support around $5, near its 200-day moving average of $4.96.
This small-cap stock can trade thinly. The three-month historical daily average trading volume is approximately 150,000 shares.
ESG risk assessment
Looking at three ESR risk providers, Payfare is not rated by Sustainalytics, MSCI or Bloomberg.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the list of positive breakouts, this indicates positive price momentum and that a company may be worth investors looking at the fundamentals to determine if the recent price strength is justified and will continue. If a security appears on the list of negative breakouts, this indicates negative price momentum, and may indicate either deteriorating fundamentals or perhaps indicate a buying opportunity.
Securities screened are from the S&P/TSX Composite Index, the S&P/TSX Small Cap Index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200 million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth a closer look.
This report should not be considered an investment recommendation.
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