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Paya Holdings Inc: Payment Stock on Sale & Ready to Break Hig…

By George Leong, B.Comm. Published : October 13, 2021

The Next Big Payment Stock

The COVID-19 pandemic has driven buying in the digital payment technology space as the demand for digital and non-touch payment solutions has jumped. While the major payment technology stocks have received most of the attention, smaller players like Paya Holdings Inc (NASDAQ:PAYA) have also garnered interest from investors.

Paya provides integrated payment and frictionless commerce solutions to a broad spectrum of clients in the U.S.

Paya Holdings Inc’s business has blossomed with the pandemic, but even as the economy reopens, payment technology companies will likely continue to flourish as digital and non-touch transactions rise.

Down 50%, Paya Stock Worth a Look

Since trading at a record $15.00 on December 28, 2020, Paya stock has steadily declined. It’s down by 25% this year and nearly 50% from its high. For the contrarian investor, this could be a good opportunity.

The following Paya stock chart shows a potential rally and breakout of the trendline resistance around $11.00 if the double-bottom pattern pans out.

Chart courtesy of StockCharts.com

Shares of Paya Holdings Inc are currently hovering around a key support level north of $10.00.

A breakdown could send Paya stock toward key downside support at $8.00, which I view as a great entry point.

Revenue Growth to Accelerate

A look at Paya Holdings Inc’s three-year revenue picture shows muted growth, but the company’s revenue outlook is bullish.

Fiscal Year Revenues (Millions) Growth
2018 $185.1 N/A
2019 $203.4 9.9%
2020 $206.0 1.3%

(Source: “Paya Holdings Inc. (PAYA)” Yahoo! Finance, last accessed October 12, 2021.)

Paya Holdings is expected to grow its revenues by 20.3% to $247.8 million this year, followed by 15.0% to $285.0 million in 2022. (Source: Ibid.)

The company’s ability to control its costs is reflected in the steady expansion of its gross margin from 2017 to 2020.

Fiscal Year Gross Margin
2017 47.3%
2018 48.1%
2019 50.1%
2020 50.4%

Driven by the high margins, Paya Holdings Inc reported earnings before interest, taxes, depreciation, and amortization (EBITDA) income in the last three straight years.

The company’s EBITDA grew by well above its revenue growth rate in 2019 and 2020, suggesting that Paya had a sound grip on its costs.

 Fiscal Year EBITDA (Millions) Growth
2018 $24.8 N/A
2019 $31.0 25.3%
2020 $42.1 35.7%

(Source: Ibid.)

Paya Holdings Inc has received higher earnings revisions.

While Paya has yet to deliver earnings-per-share (EPS) profits on a generally accepted accounting principles (GAAP) basis, the company is expected to earn an adjusted $0.39 per diluted share this year and $0.46 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

 Fiscal Year GAAP Diluted EPS Growth
2018 -$0.01 N/A
2019 -$0.10 -685.4%
2020 -$0.01 108.2%

(Source: “Paya Holdings Inc.” MarketWatch, last accessed October 12, 2021.)

In addition to the positive EBITDA and adjusted profitability, Paya Holdings Inc managed to deliver strong free cash flow in 2019 and 2020.

 Fiscal Year Free Cash Flow Growth
2018 -$197,320 N/A
2019 -$3.9 Million -1,880%
2020 $14.8 Million 477.5%

(Source: Ibid.)

Analyst Take

Institutional investors love Paya stock. Some 178 institutions hold most of the outstanding shares. (Source: Yahoo! Finance, op. cit.)

As far as its valuation goes, Paya Holdings Inc isn’t cheap, trading around 4.6 times its consensus 2022 revenue estimate. But compared to the lofty valuations in its peer group, Paya stock doesn’t look that expensive, and is worth considering at its current price.

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