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Wex: Should You Hold On For More Gains?

After more than a 78% rise from its March lows of this year, at the current price near $148 per share, we believe Wex’s stock (NYSE: WEX) has moderate room to grow. Wex, a global leader in payment solutions, saw its stock increase from $83 to $148 since March 23rd compared to the S&P 500 which increased almost 54% from its recent lows. Despite the recovery, the stock is 30% lower than seen at the end of 2019. The stock seems poised to rise as it has not recovered back to its previous levels despite seeing only a 5% drop in revenue for the first two quarters of 2020.

The company has seen growth in revenue over recent years, while its P/E multiple has also increased. We believe the stock is likely to see a moderate upside. Our dashboard What Factors Drove 5% Change In Wex Inc Stock Between 2017 And Now? provides the key numbers behind our thinking.

The rise in WEX stock price between 2017 to 2019 is justified by the growth in Wex’s revenue which increased 38% from $1.2 billion in 2017 to $1.7 billion in 2020. This effect was offset by margins decreasing from 12.8% in 2017 to 5.7% in 2019 primarily due to a $57.3 million adjustment to the redemption value of the U.S. Health business. On a per share basis, earnings went down from $3.72 to $2.29 in the period.

During the same period, the P/E multiple increased from 38x to 91x. While the company’s P/E is now 64x there is an upside when the current P/E is compared to the level seen in 2019.

Where Is The Stock Headed?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. Despite the reduction in economic activity and consumers preferences for essentials, Wex’s revenues fell by only 5% in the first six months of 2020. Revenue was recorded at $779 million in H1 2020 compared to $824 million in H1 2019.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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