Is Paysafe's Stock Overvalued Or Undervalued?

Paysafe Ltd PSFE shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 71.9%.

After falling another 44.7% in the past five days, investors may be wondering whether there’s any value to be found in Paysafe shares.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 29.4, nearly double its long-term average of 15.9. Paysafe doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Paysafe reported a $147.2 million net loss.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.6. Paysafe’s forward earnings multiple of 38.5 is still nearly 80% higher than the S&P 500’s, making Paysafe look overvalued.

Paysafe’s forward PE ratio is also more than 40% higher than its technology sector peers, which are averaging a 26.8 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 0.9. Once again, without positive earnings, Paysafe doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.19, well above its long-term average of 1.62. Paysafe’s PS ratio is 2.1, well below the S&P 500 average. However, Paysafe's PS ratio is also down 64.9% since it went public on March 31, suggesting the stock is priced at the low end of its historical valuation range.

Finally, Wall Street analysts see value in Paysafe stock over the next 12 months. The average analyst price target among the eight analysts covering Paysafe is $8, suggesting about 88.7% upside from current levels.

The Verdict: At today's price, Paysafe stock appears to be fairly valued based on a sampling of common fundamental valuation metrics.