The Wise (LSE: WISE) share price has plunged a hefty 10% since 22 September. The stock then peaked at around 1,150p, but has since fallen back to around 1,037p.
Still, even after this performance, shares in the financial services business remain 30% above their IPO price of 800p. I think this presents an opportunity to snap up some shares in this growing business at a discounted valuation.
Wise share price opportunity
There seem to be a couple of reasons why its shares have been declining recently. The most high-profile reason is the revelation that the group’s CEO, Kristo Kaarmann, has been fined by HMRC for deliberately defaulting on his taxes.
According to reports, Kaarmann was charged £365,651 after failing to file a tax return in a year when he owned £720,495.
The Wise share price dropped on this news, and it’s continued to decline on speculation that the fine could lead to action against the founder from the Financial Conduct Authority (FCA).
The financial regulator has strict rules regarding the conduct of financial company directors, and getting into trouble with HMRC is a big red flag. As of yet, the regulator hasn’t taken any action. But that doesn’t mean it won’t happen in the future.
This situation may have harmed the Wise share price, but it seems unlikely the underlying business will suffer as a result. That’s why I think there’s an opportunity for me here.
As I have noted before, I think Wise is a revolutionary business with tremendous growth potential. The organisation currently processes just £54bn of transactions a year. That’s a tiny fraction of its largest peer, PayPal, with the US tech group processing £730bn of transactions in 2020 alone.
Having used both services, I think Wise comes out on top. It is far cheaper and easier to use.
The company also has the financial resources available to grab market share from larger competitors. Last year, it generated £31m of profit after tax, which leaves plenty of money available for marketing and growth investment.
No figures are yet available for the company’s performance in 2021, but I think there is a good chance Wise has continued to expand.
This is why I’d buy the stock today despite potential regulatory issues. If the FCA moves against Kaarmann, it’s unlikely the underlying product will change. That’s what consumers are buying.
A more considerable risk will be if the company’s found to be ignoring any of the regulator’s other rules. In this situation, it could face significant sanctions. It could also face challenges from competitors such as PayPal if they decide Wise is becoming too big for its boots. However, at this point, there’s no indication this will happen.
Even after taking these risks into account, I think the outlook for the Wise share price is only improving. As such, I’d buy the stock today.
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Rupert Hargreaves 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.