Analysis of MICI stocks
- Stocks Consolidate in 14% Base Below Entry Point
- Buy point at 51.52, but earlier an aggressive move may be possible
- The relative force line is stable; The RS rating is 77 out of a potential of 99
Industry group ranking
* No real-time data. All data displayed was captured as of 1:13 p.m. EDT on 10/21/2022.
Shift4 Payments (FOUR) is today’s IBD stock as shares of the digital payment processor consolidate to a lower base of around 14% below an entry point.
Shift4 holds an entry point of 51.52. But investors should watch for a strong move in FOUR stock above its 50- or 200-day moving averages for an earlier, more aggressive buy point. Shares edged higher to close at 45.37 on Friday.
Shift4 is expected to release its third quarter results on November 7. Investors may want to be cautious ahead of the earnings report. A strategy around profits would use call options.
In the June quarter, Shift4’s earnings rose 30% to 30 cents per share while revenue soared 44% to $506.7 million.
IPO of Shift4
Shift4 launched its IPO in June 2020 with shares priced at 23.
So far this year, FOUR stock has fallen 17% amid the bearish stock market. Shift4 stock holds a relative strength rating of 77 out of the best possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS rating of 80 or higher.
But the relative strength line of the Shift4 stock remains stable.
The RS line, plotted in blue on every daily stock chart and weekly chart from IBD on Investors.com, compares a stock’s price performance with the S&P 500. If the line rises, it means the stock is outperforming the S&P 500, a market benchmark. . When it moves sideways it is more or less in line with the S&P 500 and when it is down it is underperforming.
Additionally, the Shift4 stock has an accumulation/distribution rating of B-minus. The rating analyzes the price and volume changes of a stock over the last 13 weeks of trading. The rating, on a scale of A+ to E, measures the institutional buying and selling of a stock. A+ means large institutional purchases; E stands for heavy sale. Think of the C note as neutral.
FOUR stock: Acquisition strategy
Shift4 derives the bulk of its revenue from customers in the hospitality and restaurant industries as well as casinos. It has expanded to sports stadiums, airlines and charitable donations as well as food and beverage companies. A new customer is Elon Musk’s satellite broadband service, Starlink. It operates in 20 countries.
Acquisitions have played a role in Shift4’s strategy. To help drive international expansion, Shift4 announced in early 2022 the acquisition of Finaro for $575 million. Finaro is a pan-European cross-border e-commerce platform with banking licenses in Europe, Japan and Hong Kong.
The purchase of Finaro should be finalized by the end of the year.
Additionally, Shift4 acquired software maker VenueNext for $72 million in March 2021 as it targets sports stadiums.
Another part of Shift4’s strategy involves the growth of “gateway” services. The Gateway software connects a merchant’s business operations to Shift4’s payment platform, said MoffettNathanson analyst Eugene Simuni.
“Shift4 provides gateway services to much of the US hosting industry, but is the payment processor for a much smaller share of hosting customers,” Simuni told IBD in an email. “So Shift4’s strategy is to convince its gateway-only customers to switch to using Shift4 as their end-to-end (payment) processor.”
Gateway processing accounts for 10% of Shift4’s revenue. Overall, the company derives 70% of its revenue from end-to-end payment processing and the rest from subscription software.
Shift4 to make free cash flow positive
Bullish analysts point to Shift4’s profitability. It adjusted the EBITDA margin – earnings before interest, tax, depreciation and amortization – by around 35%. Additionally, Shift4 is expected to generate positive free cash flow in 2022.
However, Goldman Sachs has a neutral rating on FOUR stock amid fears the US economy could slide into recession. If that happens, Shift4’s exposure to the hospitality industry could be a problem, Goldman Sachs analyst Will Nance said in a recent note to clients. Nance recently met with the management of Shift4.
“Overall, the message was positive as the company was very confident in its ability to grow end-to-end volumes despite a potential downturn,” Nance said. “Furthermore, we have come back progressively positive on the company’s ability to achieve gross margin expansion and (free cash flow) conversion.”
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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