PaySafe: Out of Fashion, or Time to Buy?

In today’s market, fashions change quickly, as owners of PaySafe (NYSE:PSFE) stock know only too well.

Before it came public through a special purpose acquisition company (SPAC) deal worth $9 billion last March, our Mark Hake thought PaySafe stock was a sure thing. It opened for trade on Jan. 31 at $3.37 per share, down around 75% in less than a year.

The reason is fashion. Businesses that looked great in 2021, like cryptocurrency and online sports betting, are now out of favor. So is payment processing in general. PaySafe is a transaction processor specializing in sports betting and crypto.

But, again, fashions change. Can PaySafe stock make a comeback?

What Went Wrong?

Payment processors like PaySafe were hit hard over the last year. Paypal (NASDAQ:PYPL) is down by about 26%. Fidelity National (NYSE:FIS) is down by 10%. Processors are competing with fintech start-ups and no one is winning, with SoFi Technologies (NASDAQ:SOFI) down by 17% just during 2022 and Block (NYSE:SQ) down by 21%.

But PaySafe isn’t just about transaction processing. It seeks to carve out lucrative niches in the market like sports betting. PaySafe has deals with major online gambling platforms including the Microsoft (NASDAQ:MSFT) Xbox.

In today’s market, that just makes PaySafe stock look worse.

In the last year, DraftKings (NASDAQ:DKNG) is down by 56%, Flutter Entertainment (OTCMKTS:PDYPY) is down by 19.6%, and even Caesars Entertainment (NASDAQ:CZR) is down by 8.17%. Maybe sports betting is the revolution, as I wrote last September, but it hasn’t happened yet. Costs are high and legalization is slow.

PaySafe is also into cryptocurrency, where Coinbase (NASDAQ:COIN) stock has been nearly cut in half over the last year. Bitcoin (CCC:BTC-USD) is up just 10% from where it was a year ago, and lost half its value in less than three months before bouncing recently. Lack of regulation and the prospect of regulation are both dampening enthusiasm. Maybe crypto will be the revolution, as Block head Jack Dorsey insists. But this hasn’t happened yet.

PaySafe sold itself to the stock market as a growth stock, but right now, it is not growing. Revenue was $377 million for last year’s March quarter, and $353 million for the September quarter.  The company ended September with $1.46 billion in cash and $2.2 billion in long-term debt.

Is PSFE Stock Too Cheap?

Despite all the bad news, PaySafe’s low price has people pounding the table for it.

TV’s Jim Cramer recommended it in May at $13 per share, and again in January at $3.50. The stock is bouncing off lows and is down just 2% year-to-date so far.

If optimists have left the building, as I wrote on Jan. 4, maybe the stock is cheap enough to buy. PaySafe reports its December quarter on Feb. 11, with analysts expecting a small profit on revenue of $357 million.  That would bring 2021 revenue to just short of $1.5 billion against a $2.47 billion market cap. That looks cheap to the gang at Tipranks. Their average one-year price target is 40% ahead of where it now trades.

The Bottom Line on PSFE Stock

PaySafe has been hit by a perfect storm of trouble. The business it is in is losing popularity. The niches it is in are also out of favor.

At some point, this will change. States still need money and legalizing sports betting is an easy way to get it. Cryptocurrency is not going to disappear, as much as some might want that. Transaction processing is, by its nature, a profitable business, especially when you are doing it across national lines, as PaySafe does.

But if you are ready to buy this dip, you will need patience. These are early innings in the markets PaySafe is playing in, and a lot could happen, not all of it good.

On the date of publication, Dana Blankenhorn held long positions in MSFT and SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.