What happened

Shares of Paya Holdings (NASDAQ:PAYA) dropped on Friday after the company reported its earnings results for the third quarter. The stock was down as much as 17.8% on Friday, and as of this writing, shares are down 14.1% for the day.   

So what

On Nov. 5, Paya Holdings reported its results for the three months ending in September. The integrated payment and commerce company saw revenue grow 21.8% to $63.1 million in the quarter, which investors were likely happy with. However, the company had a net loss of $3 million in the quarter, which Wall Street was probably not enthused about.

A person paying for something at a store.

Image source: Getty Images.

In Q3, Paya Holdings' gross margin was 51.7%, up from 50% in the year-ago quarter. This gross margin expansion is good news for the business since higher gross margins give it more room for positive income or cash flow over the long term. 

For the full year, Paya Holdings is expecting revenue of $244 million-$248 million and a gross margin of 52%-53%. This guidance was unchanged from the second quarter; however, it reduced its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance from $64 million-$68 million down to $64 million-$66 million. This slight change could have been why Paya Holdings stock sank so far on Friday.

Now what

It is unclear exactly what caused investor sentiment to shake with Paya on Friday, but investors now have a chance to buy the stock at a discount. With a market cap of around $1 billion, the stock has a price-to-sales ratio of around four if it can hit guidance for the full fiscal year. If you believe Paya Holdings can continue growing revenue at a double-digit rate while simultaneously expanding its gross margin, now could be a great time to buy the stock at a discount. 

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.