Paysafe (PSFE) is an emerging player in the digital payments industry, aiming to capitalize on the industry’s rapid growth. However, given its lackluster financial performance in the last reported quarter, will the firm be able to emerge as a leader in the thriving consumer finance market? Let’s find out...

Paysafe Limited (PSFE) is a prominent specialized payments platform. With over 20 years of online payment expertise and an annualized transactional volume of $120 billion in 2021, PSFE links businesses and consumers globally across 100 payment options in over 40 currencies.

The company’s shares are down 80.1% over the past year and 42.9% year-to-date to close yesterday’s trading session at $2.23. In addition, the stock is currently trading 83.3% below its 52-week high of $13.35, which it hit on June 28, 2021.

The shares plunged last month after the payments company issued dismal second-quarter guidance. The management team admitted to losing market share in Europe and under external and internal pressure. It is experiencing significant regulatory obstacles in the Netherlands and Germany for its e-cash sector. The ongoing conflict between Russia and Ukraine is also causing them to face currency headwinds. As a result, the company's e-cash division slowed. E-cash revenue for the quarter came in at $101.1 million, a 10.5% reduction from the year-ago value.

Here's what could shape PSFE's performance in the near term:

Inadequate Financials

PSFE's revenue declined 2.6% year-over-year to $367.67 million for the first quarter ended March 31, 2022. Its operating loss surged 3154.2% from the prior-year quarter to $1.19 billion. The company's net loss surged 1834.3% from the year-ago value to $1.17 billion. In addition, its cash and cash equivalents came in at $258.05 million, representing a decline of 17.7% for the three months ended March 31, 2022.

Negative Profit Margins

PSFE's trailing-12-month asset turnover ratio of 0.22% is 65.7% lower than the industry average of 0.64%. Also, its trailing-12-month ROA, ROE, and net income margin are negative 18.8%, 60.1%, and 82.7%, respectively. Moreover, its trailing-12-month levered FCF margin of 6.9% is 27.6% lower compared to its industry average of 9.6%.

POWR Ratings Reflect Bleak Outlook

PSFE has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PSFE has a D grade for Quality which is justified given the company's poor financials and profitability.

Of the 49 stocks in the D-rated Consumer Financial Services industry, PSFE is ranked #46.

Beyond what I've stated above, you can view PSFE ratings for Stability, Momentum, Growth, Value, and Sentiment here.

Bottom Line

The instability in the macro-environment will pose a considerable risk to PSFE's growth prospects. The company is also up against stiff competition from its peers. In addition, analysts expect its EPS to remain negative next year. Moreover, the stock is currently trading below its 50-day and 200-day moving averages of $2.73 and $4.46, respectively, indicating bearish sentiment. So, we think the stock is best avoided now.

How Does Paysafe Limited (PSFE) Stack Up Against its Peers?

While PSFE has an overall D rating, one might want to consider its industry peers, OneMain Holdings Inc. (OMF), Ezcorp Inc. (EZPW), and Regional Management Corp. (RM) which have an overall B (Buy) rating.

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PSFE shares were trading at $2.30 per share on Friday afternoon, up $0.07 (+3.14%). Year-to-date, PSFE has declined -41.18%, versus a -22.74% rise in the benchmark S&P 500 index during the same period.

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About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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