Payment processing company, Shift4 Payments, Inc. (FOUR), operates payment platforms that provide omni-channel card acceptance and processing solutions. FOUR’s stock has gained 6.2% year-to-date, driven by the company’s increased organizational capabilities, premium platform features and growing adoption of contactless digital payment solutions amid the COVID-19 pandemic.

However, over the past three months, the stock has declined 1.4%. Also, the shares have declined 20.3% over the past month.

The company generated a substantial loss in the last quarter. In fact, with customer volumes well below pre-pandemic levels, FOUR’s near-term growth prospects remain bleak, and pandemic-induced headwinds could continue to negatively impact the company’s profitability.

Here is what we think could influence FOUR’s performance in the coming months:

Business Headwinds

FOUR serves customers in the restaurant, hospitality, and specialty retail businesses, which are among the industries hardest hit by the pandemic. Indeed, most of its customers are still operating at restricted capacity. In its last-reported quarter, the company experienced a significant loss as a multi-location specialty retailer abruptly closed due to its failure as a business.

Although FOUR’s recent investments in 3dcart–which is now rebranded as Shift4Shop–could contribute significantly to its revenues in the long term, most of its business is heavily reliant on restaurants at a time when most are operating at limited capacity. Given that its customers’  transaction volumes  are still significantly below their pre-crisis levels, its near-term growth potential looks bleak.

Unimpressive Quarterly Performance

FOUR’s total operating expenses increased 173.9% year-over-year to $95.3 million in the first quarter, ended March 31. The company reported a $43.5 million loss from operations  for this period, compared to $8.6 million an income in the first quarter of 2020. Also,  its net loss came in at $51 million. FOUR generated a $0.62 loss per share  over this period. Its adjusted EBITDA declined 16.9% sequentially to $22.2 million.

Premium Valuation

In terms of forward P/E, FOUR is currently trading at 202.46x, which is 731.8% higher than the 24.34 industry average. FOUR’s 18.49x forward Price-to-Book is 221.3% higher than the 5.75x industry average. Also, the company’s 360.12x trailing-12-month Price/Cash flow is 1,459.3% higher than the 23.09x industry average.

Consensus Price Target Reflects Downside

Currently trading at $80.06, Wall Street analysts expect the stock to hit $64.30 in the near term, which indicates a potential 19.7% decline.

Unfavorable POWR Ratings

FOUR has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.

Our proprietary rating system also evaluates each stock based on eight different categories. FOUR has a D Value Grade, given the stock’s premium valuation.

In terms of Growth Grade, FOUR has a C, which is in sync with the company’s inadequate growth prospects.

Also, it has a D grade for Stability, reflecting that it is less stable compared to its peers.

Click here to see the additional POWR Ratings for FOUR (Momentum, Sentiment and Quality).

FOUR is ranked #66 of 74 stocks in the C-rated Technology – Services industry.

There are several top-rated stocks in the same industry. Click here to access them.

Click here to check out our Software Industry Report for 2021

Bottom Line

Even though the growing demand for QR and contactless payment solutions and FOUR’s strategic investments make the stock look appealing, the company lacks adequate financial and fundamental strength. In fact, we think the company’s expensive valuation and near-term business headwinds make it a risky bet now. 

FOUR shares were trading at $80.28 per share on Thursday morning, up $0.22 (+0.27%). Year-to-date, FOUR has gained 6.47%, versus a 10.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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