It's a tricky time to be an investor.
The stock market still seems full of uncertainty and has been mostly at the mercy of interest rates, which are swinging every day. Consumer spending is expected to weaken further after the restart of student loan payments, and fears of a recession are still lingering as the Federal Reserve has promised to leave interest rates elevated to bring inflation down to 2%.
The artificial intelligence boom that fueled a surge in tech stocks through the first half has also faded, as few companies have yet to see meaningful growth from AI.
However, there are growth stocks that still seem poised to outperform. One that looks like a smart buy right now is Remitly Global (RELY -1.17%).
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What is Remitly Global?
Remitly Global is a digital payments company that specializes in remittances, or helping immigrants send money back to their home countries.
The stock went public in 2021 and initially struggled, falling with the bear market in tech stocks last year. However, Remitly stock has surged in 2023, jumping more than 120%, as the company's revenue has accelerated and it's taken significant steps toward profitability.
In its second quarter, the company saw active customers jump 47% to 5 million, driving remittance volume up 38% to $9.6 billion, and total revenue up 49% to $234 million.
Remitly also accomplished that growth while controlling its costs, driving adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) up from a loss of $5.3 million to a profit of $20.4 million.
It also narrowed its generally accepted accounting principles (GAAP) net loss from $38.2 million to $18.9 million, showing the business is scaling and its unit economics are improving. For example, the company said that lifetime value from new customers is now 6 times customer acquisition costs.
The long-term opportunity
Remitly occupies a unique niche in the digital payments industry. The company doesn't compete with traditional fintech leaders like PayPal or Block. Instead, it sees its competition as legacy remittance specialists like Western Union and Moneygram.
As a digital-first company, Remitly has taken market share from those legacy competitors. The company is penetrating an addressable market of about $1.5 trillion and a serviceable addressable market of $540 billion, meaning the markets Remitly is currently competing in.
Future growth will be driven by the expanding immigrant community, gaining market share from legacy providers, and expanding to serve new corridors, the company's term for the two countries where the remittance flows. Its technology also helps create barriers to entry in a complex industry.
As it builds trust with the immigrant community, it expects to expand into broader financial services such as taking deposits. There's also the possibility that Remitly could get into lending and more comprehensive services for immigrants.
Why it's a buy
Remitly is growing fast, scaling the bottom line, and gaining market share from its legacy competitors, and the stock is also affordably priced.
Shares currently trade at a price-to-sales ratio of around 5, which seems like a great price for a stock growing as fast as it is and with a large addressable market.
Remitly also seems well-positioned for the current environment because its customers need its service regardless of the state of the economy or interest rates. This gives the company an advantage over digital payment platforms like PayPal that are sensitive to the business cycle and consumer spending on e-commerce and other digital channels.
In other words, Remitly is an excellent stock to own as the volatility in the broader market plays out over interest rates and the timing of a market recovery.
Given the favorable economics in digital payment platforms, Remitly could reach profitability sooner than investors think.
