A Look At Shift4 Payments (FOUR) Valuation As Growth Contrasts With Weak Recent Share Momentum

Recent share performance and business context

Shift4 Payments (FOUR) has drawn attention after a stretch of weak share returns, with the stock showing negative moves over the past week, month, past 3 months and year despite ongoing revenue and net income growth.

See our latest analysis for Shift4 Payments.

At a share price of US$42.76, Shift4 Payments has seen weak momentum, with a 30 day share price return of 12.73% and a 1 year total shareholder return of 41.02%, which points to fading sentiment despite ongoing business growth.

If you are reassessing your exposure to payment and fintech names, it can help to broaden your watchlist with other tech driven growth stories using the 20 top founder-led companies

With Shift4 trading at US$42.76 alongside annual revenue of US$4.18b, net income of US$80m and indications of a discount to some valuation estimates, you have to ask: is there a buying opportunity here, or is future growth already priced in?

Most Popular Narrative: 35.2% Undervalued

Compared with the last close at $42.76, the most followed valuation narrative points to a fair value of $65.96, implying a sizeable gap in expectations.

The cross-sell opportunity across the combined customer bases of newly acquired companies (for example, bringing Shift4's payment products into Global Blue's luxury retail clients, or introducing Global Blue's DCC product to Shift4 hotels and restaurants) creates a substantial embedded pipeline for incremental revenue and sustained organic growth over multiple years.

Read the complete narrative.

Want to see what kind of revenue trajectory and margin uplift would support that sort of gap to fair value? The narrative leans heavily on compounding earnings, richer profit margins and a future valuation multiple that assumes the market treats Shift4 more like a scaled software and payments platform than a typical diversified financial stock.

This narrative uses a 9.52% discount rate to translate those future earnings and cash flows back into today's $65.96 fair value estimate, so your own view on growth, profitability and appropriate risk premium will be key in deciding how closely you align with that figure.

Result: Fair Value of $65.96 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, slower organic trends and the execution risk around large international acquisitions could quickly challenge the idea that today’s discount is purely a mispricing.

Find out about the key risks to this Shift4 Payments narrative.

Another View: What Earnings Multiples Are Saying

The fair value narrative leans on future cash flows, yet today Shift4 trades on a P/E of 43.4x versus 15.4x for the US Diversified Financial industry, 31x for peers and a fair ratio of 21.7x. That is a wide gap. Is this a rerating story or valuation risk waiting to be recognised?

To see how those earnings multiples stack up against detailed modelling and peer checks, take a closer look at the valuation breakdown using the See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

If the mixed signals in this article leave you unsure, that is the point. Now is a good time to review the full balance of risks and rewards through the 2 key rewards and 2 important warning signs

Looking for more investment ideas?

If Shift4 has you rethinking your portfolio, this is the moment to widen your search and size up other opportunities before the market moves on.

• Target potential mispricings by scanning a focused set of quality names using the 59 high quality undervalued stocks.
• Strengthen your downside protection by checking companies that pass the 68 resilient stocks with low risk scores.
• Get ahead of the crowd by spotting underfollowed opportunities with the screener containing 25 high quality undiscovered gems.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com