Stocks that carry cheap price tags of, say, less than $20, often are anything but. Many are corporations with struggling businesses and poor prospects, unlikely to deliver strong returns over the long run. Investing even small amounts in such companies is usually not a good idea.
However, many others are rather attractive long-term bets, and Adyen (OTC: ADYE.Y) is one of them. The Netherlands-based fintech specialist has plenty to offer investors, given the strength of its underlying operations and excellent outlook. The best part: Shares are trading for under $18 apiece. Here's why Adyen is a superb stock to buy.
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Understanding Adyen's business
Adyen made its name by helping facilitate payment processing across multiple channels and locations. The company allows its clients to accept digital wallets, debit and credit cards, and region-specific payment methods both online, in apps, and in brick-and-mortar stores.
Adyen provides this service on a single platform, which significantly simplifies things for its customers. Without Adyen (or a similar service), companies would need to rely on multiple intermediaries to accept payments -- acquirers, payment processors, and payment gateways -- and might even have to seek these services separately for each region where they do business.
Adyen handles all three and offers additional services, including risk management, for good measure. The result? Some of the largest corporations in the world rely on Adyen for payments. The list includes Microsoft, McDonald's, Booking Holdings, Spotify, and more.
Adyen typically posts strong financial results, with rapidly growing total payment volume, revenue, and earnings. Margins haven't been strong over the past couple of years, but that's because the company made a conscious decision to sacrifice short-term profitability to invest in its future. And even on that front, things have bounced back somewhat.
Through the first six months of the year, Adyen's revenue increased 20% year over year to 1.09 billion euros ($1.3 billion). The company's EBITDA (earnings before interest, taxes, depreciation, and amortization) margin was 50%, versus 46% in the comparable period of the previous fiscal year.
OTC: ADYE.Y
Key Data Points
Plenty of upside ahead
Adyen has performed terribly over the past five years. The boost in business it experienced during the early pandemic years didn't last. It has also been dealing with increased competition, while its decision to invest in its future at the cost of margins may have backfired.
However, the stock is rebounding this year and has outperformed broader equities year to date. Improving margins are likely playing a part, but it's also essential to focus on Adyen's long-term opportunities. And on that front, the company has a lot to offer.
First, let's highlight Adyen's economic moat, driven by high switching costs. The company's payment infrastructure is deeply integrated into its clients' day-to-day businesses. That's especially true for multinational corporations that rely on Adyen's platform across multiple geographies. Switching comes with the risk of payment disruptions and other potential problems. It's not something these companies would take lightly, granting Adyen a strong competitive edge.
Turning to the company's growth prospects, the increased shift to e-commerce is a powerful tailwind for the entire fintech industry. That's one of the reasons analysts estimate that the sector is on a northbound path. Specifically, Adyen has been counting on several opportunities, including international expansion.
Adyen still generates most of its sales from Europe, the Middle East, and Africa, but an increased push into the U.S. gives the fintech specialist a vast addressable market. Elsewhere, Adyen is also starting to go after a newer client segment: large-format retail, which it sees as an attractive growth opportunity.
While the stock has been crushed over the past five years, it now looks likely to climb through the end of the decade as it maintains its excellent financial results and gains more clients. Adyen is a fantastic company to invest in, especially for just about $18 a share.
