Shares of Adyen NV (ADYEY), the Dutch payments processing company, fell to a 3-1/4 year low today and have plunged more than -46% since reporting disappointing first-half revenue growth last Thursday. Despite the plunge in Adyen over the past week, the stock still looks expensive when compared to rivals like PayPal Holdings (PYPL), making many investors wary of buying the stock anytime soon.
The valuation of Adyen remains elevated even with the current slump in its share price. Adyen trades at 33 times forward earnings, well above the 19 times average among payment companies in a Bloomberg Intelligence index. Meanwhile, Worldline SA (WWLNF) and PayPal Holdings both have valuations below 12 times forward earnings. Mirabaud & Cie SA said, “We believe Adyen is a dead money investment over the next couple of months,” and we recommend waiting for the company’s next earnings results to see if there’s a good opportunity to buy the shares.
Many analysts were caught off guard by last Thursday’s first-half earnings results from Adyen, which showed a severe deterioration in sales growth. Before last Thursday’s results, the majority of analysts had a buy or equivalent rating on Adyen. However, since last Thursday, at lead five analysts have downgraded Adyen, with Citigroup projecting more downside in the company’s share price amid aggressive competition in the payment sector and high spending by Adyen on new hires and other investments.
Many analysts had Adyen priced to perfection, sending the stock’s valuation had risen to extreme levels. Before last Thursday’s earnings results, Adyen was priced at about 54 times projected profits and was among the ten most expensive stocks in Europe’s Stoxx 600 Index. Mirabaud & Cie SA said, “Absolute valuation was completely overstretched over the last couple of years, with a premium versus the Stoxx 600 Index close to 10 times.” Also, Citigroup said, “I don’t think you’re going to get back to the sort of high multiples that the company had” during the past few years.
Some analysts believe Adyen needs to communicate better with investors as it only reports on a half-year basis, while most other companies report quarterly. Citigroup said limited financial communication is partly what caused expectations for Adyen to go so high. However, some analysts are positive about the earnings prospects for Adyen and believe the company’s premium is justified. Dutch wealth management company 1Vermogensbeheer said the current stock price is “very attractive,” though it may take several years for the shares to recover from the recent plunge as Adyen needs to rebuild trust with investors.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
