It may seem trivial, but the rule of thumb in investing is to buy low and sell high. Many, including institutional investors, tend to be overreactive to bull and bear markets and end up adjusting their portfolios based on hindsight research. Due to a series of unforeseen events, Paysafe (NYSE:PSFE) the stock has lost nearly half of its market value in the past twelve months, prompting many large hedge funds to dump their positions.
I think they made the wrong choice and this is the perfect opportunity to buy back a stock that has been oversold and abused by the market.
Sale of hedge funds
Q4 13-F filings revealed that a few of the heavy hitters sold their stake in Paysafe; among these were Third Point by Daniel Loeb, Leon Copperman and David Tepper.
Overall, hedge funds have reduced their Paysafe holdings by 15.1 million shares in the last quarter, which represents a significant change in sentiment, given that we are looking at a company that has only 723.71 million shares outstanding.
I find the extent of hedge fund selling exceptionally obscure, as we are looking at a stock that fits into a barbell strategy where funds will typically buy a risky asset such as PSFE stock and hold it for the long term .
The integration of digital payment systems and affiliated businesses has been consolidated during the pandemic shutdowns, consequently turning into a market that is expected to grow at an annual rate of 20.23% until 2026.
Although Paysafe’s success has come by ebb and flow, the business still offers an edge Return on invested capital (1.92%), suggesting that he has a strong position in the industry. In addition, the company’s investments increased by 33.32% over the past year, indicating that the company is investing aggressively to improve its growth prospects.
Paysafe continues to expand in critical areas. For example, the company recently confirmed its expansion into Louisiana and Oregon as a facilitator for mobile sports betting and various affiliates.
If Paysafe can continue to expand its footprint across multiple sectors, we’ll likely see a stock with a better Risk Vs. Overall Return profile, meaning its returns will likely be more positively biased than before.
Valuation and dynamics
PSFE stock faced a significant headwind towards the end of last year when the performance of its digital wallet business fell short of market expectations. However, Paysafe should be viewed as a sum of the parts business, and its attractive valuation multiples suggest so.
It is empirical to look at price-to-sales and enterprise-value-to-sales ratios when analyzing a growth stock because they account for volatility and ignore transient costs.
Compared to industry peers, PSFE stock price to sales and enterprise value to sales ratios are undervalued by 62.85% and 19.36%respectively.
These indicators suggest that the PSFE is an excellent buying opportunity, especially when considered in tandem with factors such as the stock price above its 10-day moving average with an RSI of 47.00, which has just crossed its oversold threshold.
In my view, PSFE stock will soon reach an inflection point. Investors tend to overreact to short-term events, and we saw this happen firsthand with PSFE stocks after the company’s digital wallet business underperformed towards the end of the year. last.
The stock is currently undervalued and potentially destined for phenomenal growth given the industry’s potential and the company’s market positioning.
Investors should consider a long-term horizon when deciding whether or not to invest in the stock to get rid of the short-term volatility risk that the stock presents.
As of the date of publication, Steve Booyens held no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Steve booyens co-founded Pearl Gray Equity and Research in 2020 and has since been responsible for equity research and public relations. Prior to founding the company, Steve held various finance positions in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency and ESG.