Shares of once-hot payment-technology stocks, including PayPal Holdings Inc. and Square Inc., have been hammered in recent months, and one analyst thinks the selloff has gone too far.
BTIG analyst Mark Palmer encouraged investors to “strongly consider buying the dip” on both names as they look for stock-picking opportunities amid the “fintech equity carnage.”
PayPal shares PYPL,
Palmer noted that earlier in the pandemic, fintech executives argued that the crisis was driving a permanent shift toward greater digital-payment adoption, but he said that investors now may be wondering whether all that talk of “lasting” changes was “misguided.”
Coming out of the companies’ last earnings reports, “investors seeing suddenly dicey macroeconomic conditions,” including an economic slowdown and rising inflation, “were not inclined to hold the stocks of companies whose volumes and revenues were viewed as vulnerable to a deteriorating operating environment until the next quarterly earnings print,” Palmer wrote in a Wednesday note to clients.
Still, he sees the selloff as overdone as PayPal and Square have lost “almost all the multiple expansion that occurred when the pandemic tailwind was in full force,” despite bright opportunities ahead.
“With speculative froth replaced by reduced expectations that border on despondency in the cases of PYPL and [Lightspeed Commerce Inc.], in particular, we believe it’s worth revisiting the product-market fits that enabled these companies to emerge as market favorites in the first place,” Palmer wrote.
He said Square is “the most compelling” stock within his fintech coverage, as the company’s Cash App has the chance to emerge as a “super app” that bundles various financial services beyond just payments. Palmer is upbeat about the company’s pending deal for buy-now pay-later operator Afterpay Ltd. APT,
Palmer also likes Lightspeed shares LSPD,
While that earnings report initially “may have appeared to validate the thesis of the activist short seller who had been making noise about the company during the weeks leading up to the print,” Palmer thinks investors may have overlooked a few key positives. For one, while Lightspeed’s net customer additions may have disappointed, that figure reflected “elevated churn and subscription pauses stemming from renewed lockdowns,” whereas gross customer additions were strong.
Another beaten-down stock that looks attractive in Palmer’s view is PAR Technology Corp. PAR,
Finally, he sees potential in some smaller fintech stocks that have been unloved as of late and that could wind up as acquisition targets. These include Repay Holdings Corp. RPAY,
