The Wise (LSE: WISE) share price has exploded since its recent market debut. It started trading at a price of 880p and has grown by 100p to today’s price of 980p. This stock’s excellent start has caught my attention, but it has also left me wondering whether or not the stock will be able to justify its price in the years to come.
With a high P/E ratio of 441.71, is Wise still a smart investment for me to buy now? Here’s why this Fool will err on the side of caution and wait for a better entrance point.
The rise of the Wise share price
Wise has proven itself as a high-performing company already. Of course this is a key indicator I look for when planning any of my long-term investments. The company’s trading statement for the first quarter of FY22 has demonstrated just how well it has been resonating with customers. Wise reported a total of 3.7 million customers making transactions in Q1, resulting in 28% year-on-year growth in personal customers and a 56% growth in business customers from the previous year.
Kristo Käärmann, the co-founder, said that he was pleased the company was able to reduce pricing by 2bps (basis points, bps is the standard measurement for interest rates and percentages) in the first quarter for 19 currencies, as well as achieving the instant delivery of 38% of all transfers.
The company also reported revenue of £123.5m with a year-on-year growth of 43%.
It seems to me that Wise’s Q1 report has demonstrated just how strong a player it will be in the future of the FinTech industry. Yes, it’s delivering on its expected earnings, but more importantly, customer numbers are growing astronomically.
However, while I’m bullish overall on Wise, I’m still cautious of the fact that the firm is in its price-discovery phase.
Is it the right time to buy?
The Wise share price has seen some volatility since it opened, with an initial high of 1,030p, it then dropped to 902p on 16 July. The price has more recently seen some stability around the 980p to 990p mark. But at the moment, I’m unsure on where the price will land in the coming months and I don’t want to invest until the price has shown me a more convincing trajectory.
There’s also a slight concern that the company’s revenue growth is slowing down as the world continues to recover from the pandemic. Overall, its FY22 first-quarter revenue growth was lower than the 70% increase from 2019 to 2020.
That huge P/E ratio is also a red flag for me and I think that this number could continue to increase. Wise is simply too overvalued for me to want to invest at the moment. So, I will be watching this share with avid interest and I hope for a better entrance point for buying. I’m certainly in no rush to buy this stock until I feel that the price can be justified.
John Town 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.