This summer, I compared two recent digital payments IPOs: Shift4 Payments (NYSE:FOUR) and REPAY Holdings. I ultimately opted to purchase the latter, but since then it's been Shift4 and its focus on the beaten-down hospitality and restaurant industries that has been the winner. As of Thursday morning, the stock has just about doubled since the end of its first trading day.  

However, this is still a tiny company in the world of digital payments that stands to benefit from a gradual COVID-19 economic recovery. Shift4 is thus worth a serious look for investors who want small businesses with big potential upside.

Digital payments unified with other small business tech

Shift4 may be an obscure name in an industry dominated by giants like PayPal Holdings and Square, but don't overlook its importance to the small-business community. It serves over 200,000 businesses (mostly in the U.S.) and has carved out a niche for itself among restaurants and hotels. It offers point-of-sale services, including contactless devices and QR code scanners, an online ordering system for restaurants, payment security, and analytics for these mostly small businesses.  

A woman holding a smartphone and credit card.

Image source: Getty Images.

Heavy reliance on restaurants and hospitality in 2020 doesn't sound like a great place to be, but Shift4 has bucked the trend and has remained in growth mode despite the deep pain COVID-19 has inflicted on restaurants and the like. Revenue increased 5% from a year ago through the first nine months of the year. Shift4 has managed to grow because an increasing number of local businesses have turned to it for help managing uncertain times. As a new digital era dawns, this digital payment and software provider is better suited to help its customers adapt to e-commerce and more modern payment methods than a traditional bank is.

But 5% revenue growth in and of itself doesn't warrant a nearly doubling in share price in a six-month stretch. Optimism is nonetheless building, though, as vaccines for the novel coronavirus start to ship and an end to the pandemic appears on the horizon. Management just boosted its outlook for the final quarter of the year. At the midpoint of guidance, Shift4 will notch a 7% year-over-year revenue increase to $90 million. A 13% year-over-year rise in transaction volume in November was also reported, another positive sign this company remains on solid footing despite the pandemic. Not bad given the state of affairs right now, and growth could accelerate even more going forward as economic conditions improve.

A promising digital payments platform

Shift4 also recently got itself some international e-commerce exposure with the acquisition of 3dcart, giving it another growth lever to pull on in the years ahead. In fact, the company plans to really lean into expansion overseas, into sports and gaming, and into digital commerce in general outside of its restaurant and hospitality industry bread-and-butter. To accomplish this, Shift4 followed up its IPO from this past summer with the sale of $450 million in new convertible debt at the end of October and another $690 million more in convertible debt at the beginning of December.

Paired with the $329 million in cash on the balance sheet at the end of September, Shift4 will have ample liquidity on hand to pursue its goals. And with a market cap of just $5.4 billion, this is still a small company with plenty of upside if it can execute on all this -- not to mention ride an eventual rebound in the hardest-hit segments of the economy. Shift4 will increasingly compete against larger peers as it grows its ecosystem of digital payments and related services, but this is a massive market opportunity that is still disrupting the fragmented traditional banking industry rather than stepping on the toes of other digital payment providers.  

Granted, as a small disruptor, Shift4's stock isn't for the faint of heart. But for those who are looking to invest in the war on cash and have years to wait patiently, keep this one on your radar. Just remember to keep any initial purchase small (I like to start with less than 1% of my portfolio value) so you have room to buy more later as it proves itself.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.