Nuvei (NVEI) (TSE: NVEI) is a high-growth company that is trading at a very reasonable valuation multiple. Although its financial trends are mixed, the company does have the potential to create plenty of value for shareholders.
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Industry Tailwinds and Acquisitions Will Act as Growth Catalysts
Nuvei operates in the digital payments market. The market was valued at over $7 trillion in 2021. The industry is expected to grow at a compound annual growth rate of 12.38% between 2022-27, demonstrating that the industry is healthy and growing quickly.
This can be attributed to the growth of e-commerce and consumers’ increasing reliance on smartphones. Indeed, the increased use of smartphones in emerging economies will have a major impact on the industry’s growth. Thus, NVEI has industry tailwinds to help fuel its growth.
In addition, the company has been actively engaging in acquisitions to help accelerate its growth. With $735 million in cash and cash equivalents, this may not be a bad idea if the acquisitions are made responsibly.
Nuvei Has Mixed Financial Trends
To begin with, Nuvei has an impressive gross profit margin that hovers around close to 80%. However, this margin has been steadily declining over the past several years, from a peak of 84.8% in 2018 to 78.8% in the last 12 months. However, its free cash flow margin has increased dramatically from 8.7% to 34.6% over the same time period.
In addition, the company has seen strong revenue growth during the past several years, including a 92.6% jump in 2021. Nevertheless, it’s important not to forget about acquisitions. In fact, when subtracting cash acquisitions from free cash flow in the last 12 months, the company actually had a cash outflow of $25.7 million ($273 million – $298.7 million).
It’s worth noting that free cash flow after acquisitions has been negative four out of the past five fiscal years. This should not be discounted since acquisitions appear to be a big part of the company’s growth strategy.
Nevertheless, investors shouldn’t be too worried because if the company were to simply focus on profitability, it would have very attractive margins.
Indeed, when excluding acquisitions, Nuvei trades at a very reasonable price-to-FCF multiple of 16.5 times. Considering that it’s not done growing, the stock could make a very strong investment at current prices.
Analysts See Strong Upside Potential for Nuvei
Nuvei has a Strong Buy consensus rating based on nine Buys and three Holds assigned in the past three months. The average NVEI price target of $71.88 implies 111% upside potential.
Final Thoughts: Nuvei is a Stock to Consider Buying
Nuvei is a company that is growing fast with very impressive profit margins. Although it spends heavily on acquisitions, it has the ability to generate strong free cash flows. As a result, it’s a stock worth considering.
