Is Adyen Stock a Buy Now?

Adyen (ADYE.Y 3.50%) benefited tremendously from the COVID-19 pandemic, as digital payments activity took off. The shares skyrocketed 400% in roughly the two years leading up to their all-time high in late 2021. But things have cooled down since then in a more normalized economic backdrop.

The shares remain 45% off their peak. Things are trending in the right direction, though, and the stock has surged about 65% since early August. Does the momentum make the fintech stock a buy now?

Carving out a successful niche

The payments sector can be hard to keep track of. There are many companies all jockeying for a position to handle greater payment volume. Whether it’s Visa, Mastercard, PayPal, or Block, for example, it can be difficult to figure out how a business fits into the bigger picture.

Adyen might be unfamiliar because it focuses on targeting merchants rather than consumers. It offers payment processing and various financial tools in a holistic solution that helps facilitate seamless commerce through a variety of different channels. The company has some important customers that include the likes of Spotify, Uber, and McDonald’s.

Given Adyen’s growth trajectory, it’s clearly doing something right to win more business over time. Net revenue jumped 23% in 2024, driven by a 33% rise in processed transaction volume. Double-digit percentage growth occurred in all geographies, but Europe, Middle East, and Africa saw the biggest gain.

Management still sees a lot of potential for growth. “As businesses navigate an increasingly competitive landscape, turning payments into strategic opportunities is becoming a higher priority,” the latest shareholder letter reads. Companies increasingly want tech partners that can help drive their own revenue growth. It also helps Adyen that cashless payment methodologies are becoming more popular on a global level.

Wall Street analysts estimate on average that revenue will grow at a compound annual rate of 25% during the next three years. That’s a healthy outlook that will likely be propelled by a combination of greater spending from existing customers and bringing on new accounts.

Characteristics of a high-quality enterprise

Besides its growth — something investors are drawn to first — Adyen possesses two other notable characteristics that point to this being a high-quality business.

The first deals with its income statement. The company is incredibly profitable. Its EBITDA (earnings before internet, taxes, depreciation, and amortization) margin in 2024 came in at 50%. There aren’t many businesses that come close to this level.

Payment processing can be a very lucrative endeavor, particularly once a company reaches greater scale. In Adyen’s case, there are large fixed costs to build out the technological infrastructure. But every additional transaction that’s handled should carry a high incremental margin.

Another key characteristic is the presence of an economic moat. Despite this being a crowded industry, Adyen has developed an important sustainable competitive advantage.

It benefits from a network effect. Bringing on more customers, coupled with greater payment volume being processed, helps Adyen improve its fraud detection. In turn, this can result in better authorization rates, which generates more sales for customers. New customers gain from the success of existing customers, with the entire platform improving over time.

No need to rush

Adyen is definitely worthy of investment consideration for anyone looking to own a quality business for the long term. However, I don’t believe it’s a smart buy right at this moment.

As of this writing, the shares trade at a price-to-sales ratio of 24.2. The stock has rarely been more expensive. The market is fully aware of Adyen’s positive traits, so the current valuation makes sense.

The best move for investors, in my opinion, is to add Adyen to the watch list for now. There are certainly some lofty expectations embedded in the stock price. Practice patience and wait for a better opportunity to become a shareholder.