The Wise (LSE: WISE) share price defied gravity between the company’s direct listing in July of this year and mid-September.
Unfortunately, this came to an end at the beginning of October. Shares in the money transfer business have fallen around 10% since the beginning of the month.
The factors that seem to have spooked investors appear to be temporary. That’s why I think the stock could end the year on a high note as it prepares for further growth in 2022.
Wise share price under pressure
As far as I can see, there are two reasons why the stock has performed so badly recently. First off, at the beginning of the month, the company’s co-founder was fined for deliberately not filing his tax return with HMRC.
Not only was this a PR nightmare, but it also led to speculation that the FCA would move to sanction the company manager for failing to uphold fit and proper standards. The regulatory agency has not taken any action yet, and there’s no indication it will.
The second factor Wise cannot do anything about. Rising inflation concerns have spooked investors. The threat of interest rate increases has led some investors to sell their holdings in growth stocks, like Wise, as higher interest rates could lead to lower growth.
Both of these factors are, in my opinion, short-term headwinds. Even if the FCA moves against the co-founder, the organisation’s underlying business should escape relatively unscathed. Moreover, higher interest rates won’t stop consumers from sending money through the company’s platform.
I think these are short-term headwinds, but they could become long-term risks. As such, I’ll be keeping an eye on both threats.
Growth potential
Considering all of the above, I don’t believe the company’s growth potential has changed substantially over the past few weeks.
This suggests to me that the stock is better value today than it was at the end of September, before it started to slide. And as these short term headwinds begin to dissipate, I think the Wise share price could outperform in the last few months of the year as investors concentrate on the group’s growth potential in 2022.
Wise’s growth over the past few years has been nothing short of phenomenal. Revenue has grown at a compound annual growth rate of 54% since 2019, and the company has been profitable for the past five years.
I think the firm will report a substantial increase in business for its current financial year as the direct listing of the stock generated a considerable amount of press. This is bound to have ignited new customer interest. That’s why I’d buy the stock.
The business should be able to build on this growth in 2022, and I think we will see that in the figures. The company should provide a trading update to the market over the next few weeks.
However, in the meantime, the Wise share price may continue to tread water. Still, here at the Motley Fool, we are long-term investors. That’s why I’m looking past the stock’s recent performance and concentrating on its potential over the next few months and years.
