As of this writing, Adyen's (ADYE.Y -0.70%) stock has declined 6% this year. That's a terrible showing when compared to the 21% rise of the S&P 500 and the 38% jump in the Nasdaq Composite Index. Even more striking, Adyen shares are roughly 60% below their all-time high.
However, investor optimism seems to be skyrocketing for this payments business. Since the company provided its latest financial update on Nov. 8, shares have soared more than 73%.
So, is it time to buy this fintech stock right now? Let's take a closer look.
Favorable trends
Adyen provides a single platform to help large enterprises accept payments through different channels and in different geographies. There's no question about the presence of product-market fit.
That's because Adyen's growth has been exceptional. The business handled $70 billion in payment volume in the first six months of 2018, a figure that soared to $426 billion in the first half of this year. During this same five-year stretch, revenue ballooned 373%.
There are numerous tailwinds that have bolstered Adyen over the years. Of course, the rise of cashless transactions across the global economy is one of them. Yet even in the U.S., 58% of consumers still use cash for some or all of their transactions in a typical week (data from 2022), according to the Pew Research Center.
There are other factors helping Adyen. The rising complexity of the payments value chain, with what seems like a never-ending list of service providers all trying to make do, makes Adyen's one-stop solution compelling. The globalization of commerce, coupled with varying regulatory frameworks in different geographies, also helps this business attract more customers.
There's no reason to believe that these trends are going to slow anytime soon. Management believes this to be the case, too. They expect Adyen's revenue to rise at a compound annual rate in the mid-20% range through 2026. This could lead revenue to double.
Critical service provider
A telltale sign of the quality of a business is to ask what would happen if Adyen ceased to exist. In this hypothetical scenario, the company's customer base would all experience substantial disruptions to their operations. How would they be able to process transactions and collect payments? It would be a nightmare.
With that in mind, it's clear that Adyen is a mission-critical service provider for the enterprises that use it. And this helps explain why the company possesses an economic moat, making it hard for rivals to unseat it.
Adyen is winning over large and well-established companies, like Microsoft, Uber, and McDonald's, because of its data advantage. Being able to process so many transactions lets Adyen better mitigate risk. Moreover, as Adyen continues to process more payment volume, its technology, fraud detection, and authorization rates will only improve. This benefits every customer the business has.
The fact that Adyen's founders, Pieter van der Does and Arnout Schuijff, have built such a thriving business in less than a decade is truly remarkable. If it continues on this trajectory, it's easy to envision the company being a dominant force in the years ahead.
Compelling valuation
A business that checks the boxes from a qualitative perspective, as Adyen appears to, may not always make the stock a no-brainer buy. Understanding the valuation is very important. The last thing you want to do is overpay.
Adyen shares are currently trading at a price-to-sales (P/S) multiple of 6.5, which is below its historical average of 10.6. For value-conscious investors, that P/S ratio might still be too expensive. But when you consider all the favorable attributes this company has, perhaps it's still a good idea to buy the stock at these levels.
