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Could Nuvei Stock Help You Become a Millionaire?

Two seniors float in a pool.
Source: Getty Images

Written by Brian Paradza, CFA at The Motley Fool Canada

It feels good to have a million dollars. Many years ago, $1 million used to be the most thought-about savings and investment target for most youths. The question, “How much do I need to retire comfortably in Canada,” now attracts an “it depends” type of answer as Canadians increasingly become more financially savvy. Regardless, targeting a million-dollar retirement portfolio remains a noble endeavour.

Growing your regular income from employment, side hustles, serious business ventures, and saving more towards retirement will accelerate progress towards a million-dollar net worth. Further, diligently investing your savings in Canadian growth stocks could compound your wealth and help you achieve retirement targets sooner. Investing in Nuvei (TSX:NVEI) stock could also help one become a millionaire.

Nuvei stock: A beaten-down growth play with recovery potential

Nuvei is a $4.5 billion Canadian fintech stock that’s diligently expanding its payments processing software globally. Recent partnerships with established tech giants and acquisitions could accelerate the company’s revenue and earnings growth and lift the beaten-down growth stock back to its glory days — over time.

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Down 81.3% from its peak recorded in late 2021, Nuvei stock is an intriguing recovery play. Although the company pulled off a 47.4% compound annual growth rate (CAGR) in revenue over the past three years, its diluted earnings per share plummeted at a CAGR of 62% annually during the same period.

A market rout in 2022 and investors’ general disdain for highly priced growth stocks with weak earnings since then help explain the plunge in Nuvei stock over the past two years. There’s a chance for a recovery as the company experiences organic growth in key markets and acquires competitors, like Paya, to consolidate market share in a fragmented global payments market.

One mental bias among investors is the overgeneralized anticipation that a stock can recover back to its prior valuation. If Nuvei stock recovers to reclaim its prior peak price of $175 per share, the epic recovery would gift investors with a 433% gain from current trading ranges below $33 a share. The recovery could increase an investor’s capital more than five-fold.

Could such a gain help you become a millionaire? Definitely. While such substantial gains may take a very long time, any reasonable capital gain in NVEI stock from current levels would be welcome. But how could capital gains come by?

How could NVEI stock recover to reclaim all-time highs?

For Nuvei stock to rise again and enhance its investors’ chances of becoming millionaires, one or all of three things must happen.

Firstly, the company must substantially increase its revenue, earnings, or cash flow per share. Increases in the per-share fundamental metrics justify higher stock prices — even if valuation multiples remain constant.

Bay Street analysts estimate a 28% CAGR in Nuvei’s sales over the next two years and assign the stock a 29.5% long-term earnings growth rate. Constant price-to-sales (P/S) and forward price-to-earnings (P/E) multiples of 3.1 and 11.3, respectively (both of which seem reasonable today), could lead to substantial increases in Nuvei stock price soon if anticipated growth unfolds.

Secondly, Nuvei may enjoy a significant expansion in its valuation multiples if management executes well. Higher P/S and P/E or cash flow multiples will lift NVEI stock as investors increasingly believe in the company’s ability to sustainably grow its market share and earn gargantuan profits. A return to periods of irrational exuberance could do the trick, too, by lifting valuations higher for fintech stocks registering double-digit growth rates.

Finally, substantial increases in Nuvei’s quarterly dividend, which was initiated at US$0.10 per share during the past year, may improve returns to shareholders.

The new dividend yields a token 0.8% annually. However, the investor-friendly capital budgeting policy could enhance total returns to shareholders, especially when combined with voluntary debt repayments and share repurchases — as is currently the case at Nuvei.

Time to buy?

It remains to be seen whether Nuvei will grow revenue and earnings as anticipated, and the stock’s high volatility may persist. That said, sustained growth, a return to profitability, efforts to deleverage its balance sheet, and substantial growth in free cash flow will improve the stock’s attractiveness as a long-term investment.

The growth stock is reasonably priced today to give investors some margin of safety.

The post Could Nuvei Stock Help You Become a Millionaire? appeared first on The Motley Fool Canada.

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Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nuvei. The Motley Fool has a disclosure policy.

2024