Should I buy Wise shares?

Wise shares are up 20% above the company’s direct listing opening price. Royston Roche shares his view on the stock after reviewing the company.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand arranging wood block stacking as step stair on paper pink background

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

British fintech firm Wise (LSE: WISE) made a successful direct listing on 7 July 2021. The Wise share price rose 10% on opening day to close at 880p. The shares continued their good run and are currently up around 20% from the opening price. 

Here, I review the company to understand the pros and cons of investing in this company.

Wise company’s overview

The company was started by two Estonian friends, Kristo Käärmann and Taavet Hinrikus, in 2011. Frustrated by the high fees charged to transfer money overseas, they found a way to transfer money cheaply. Earlier this year, the company’s name was changed from TransferWise to Wise, primarily due to the extended services of the company. 

The company used a direct listing instead of the usual initial public offering (IPO). A direct listing is cheaper due to the absence of intermediaries. This type of listing is more suitable for companies that are already very popular. In fact, this was the case of the Wise shares. Another key differentiator is that only the existing investors sell shares and no new shares are issued in this method.

The company has two classes of shareholders. The company’s early investors include PayPal co-founder Peter Theil. The Class B shares will have an extra nine votes per share. They will not be listed and will cease to exist after five years of the listing of shares.

Fundamentals

The company has solid revenue growth. Revenue grew at a compound annual growth rate of 54% from the fiscal year 2019 to 2021. In the fiscal year 2021, revenue grew 39% to £421m. It also has a geographically diversified revenue base. Europe, excluding the UK, constituted 33% of 2021 revenue, the UK (23%), Asia-pacific (21%), North America (17%), and the rest of the world (6%).

Another reason why I like Wise shares is that the company is profitable. Its net profits grew from £10.3m in 2019 to £30.9m in 2021. The free cash flow was £103.9m. The company has been able to grow its active customers rapidly. It grew from 3.3m in 2019 to 6.0m in the fiscal year 2021.

Wise shares – risks to consider

The company has a dual-class shareholding. It gives the founders and early investors the majority of the voting rights. It is good to have more control over the functioning of the company. On the other hand, retail investors will not be able to influence the company’s decisions. 

Wise will face stiff competition from traditional banks and digital banks. Its close competitor, Revolut is also popular with similar services and is growing rapidly, which is a concern.

Wise shares are currently trading at a price-to-sales ratio of 31. In my opinion, the valuation is a bit high for me to consider it as a value buy.

Taking all things into consideration. I like the company’s products and its strong revenue growth. I will keep the stock on my watchlist and wait for a better entry point to add it to my portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Roche has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings. The Motley Fool UK has recommended the following options: long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s what dividend forecasts could do for the BP share price in the next three years

I can understand why the BP share price is low, as oil's increasingly seen as evil. But BP's a cash…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

This FTSE 100 Dividend Aristocrat is on sale now

Stephen Wright thinks Croda International’s impressive dividend record means it could be the best FTSE 100 stock to add to…

Read more »

Investing Articles

3 shares I’d buy for passive income if I was retiring early

Roland Head profiles three FTSE 350 dividend shares he’d like to buy for their passive income to support an early…

Read more »

Investing Articles

Here’s how many Aviva shares I’d need for £1,000 a year in passive income

Our writer has been buying shares of this FTSE 100 insurer, but how many would he need to aim for…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

1 incredible growth stock I can’t find on the FTSE 100

The FTSE 100 offers us a lot of interesting investment opportunities, but there's not much in the way of traditional…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With an £8K lump sum, I could create an annual second income worth £5,347

This Fool explains how a second income is achievable by using a lump sum, investing in stocks, and the magic…

Read more »

Investing Articles

Here’s what dividend forecasts could do for the BT share price in the next 3 years

With the BT share price down so low, the dividend looks very nice indeed. The company's debt is off-putting, though.…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

28% revenue growth per year and down over 20% in price! Should I invest in this niche FTSE 250 company?

Oliver says this FTSE 250 company has done an excellent job bringing auctioning into the modern world. Will he invest…

Read more »