Some stocks just don’t get a lot of notoriety but they deserve the plaudits. In the United States if you were to ask someone to name a digital payment processor, you would likely hear the names Square or Stripe, but the odds are Adyen wouldn’t rank highly in a poll.
It’s with good reason that the Dutch firm flies under-the-radar. Where Stripe is well-known among small business owners and start-ups, and Square is known by consumers as the point-of-sale checkout system when grabbing the morning cup of coffee, Adyen serves much larger enterprises, such as eBay.
Because it is largely a behind-the-scenes provider, its name recognition and brand value are low in the minds of many retail investors but that may be on the cusp of changing.
In the last month alone, Adyen is up by about 76%, crushing the impressive double-digit returns of the S&P 500 by a factor of about 7.5x.
But is it too late to buy?
- Despite lesser name recognition compared to Square and Stripe, Adyen excels in serving large enterprises.
- Adyen’s stock has risen 76% in a month, outpacing the S&P 500, despite trailing the index overall this year.
- With impressive revenue growth, earnings, and a high return on invested capital, Adyen shows promising growth prospects, supported by positive analyst forecasts.
Track Record This Year
Although Adyen has almost doubled in the space of just 4 weeks, it is remarkably still under water for the year. Indeed while the S&P 500 has vastly underperformed it over the past month, it has substantially outperformed it year-to-date by a margin of about 34%. That means Adyen can rise by about a third and still only deliver a performance that matches the major market average for the year.
And that’s precisely what a discounted cash flow forecast analysis would suggest is possible with fair value on a ten year DCF sitting just under $1,400 per share. That lofty price target pales in comparison to the one analyst covering the stock who has a price target of over $1,600 per share on it. If either is correct, clearly the upside for the digital payments provider is significant.
Will Adyen Pop?
On paper, Adyen appears undervalued but whether it will rise to meet the forecast valuation is another matter. On that front we can turn our attention to revenue growth, which has been stunning by delivering 67% YoY quarterly growth in multiple quarters over the past half decade, and virtually every earnings report has been accompanied by similarly good news.
And then there’s earnings, which has consistently been impressive and rising. So too have cash flows wowed investors as has the firm’s ROIC that is just shy of 20%, almost double the market average. The company’s return on equity has been a stunning 23.3% also.
No matter how you scrutinize Adyen across financial metrics, it can’t help but shine brightly. Indeed bullish sentiment is so strong now that it’s less a question of will the stock keep rising as much as will there be a dip to offer a chance to buyers to get in on a pullback?
Some analysts have commented that Adyen’s growth has far eclipsed that of its more recognized rivals in the US and, furthermore, the company’s profitability and margins look better too.
By targeting much larger enterprises, Adyen has the ability to enact more complex pricing structures versus fixed-fee models approached by the likes of Stripe, and by dealing with larger volumes per customer, too, it has managed to grow revenues at a rapid pace.
Will Adyen keep on rising? Don’t bet against it. The real question is will the market offer a window to buy on a pullback. Time will tell, but only if you put it on your watchlist.