Should I invest in Wise after its share price fall?

The share price of UK FinTech company Wise has fallen more than 20%. Edward Sheldon looks at whether this is a buying opportunity.

| 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.

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.

sdf

Shares in UK FinTech company Wise (LSE: WISE) – which went public in July – have experienced a sharp pullback. Less than a month ago, the stock was trading near 1,175p. Today however, the share price sits at 900p.

Has this 20%+ pullback created an attractive entry point for me? Let’s take a look.

What I like about Wise

There are a number of things I like about this business. For starters, I think it offers an excellent service. I’ve used Wise’s FX transfer platform for around eight years now and I’ve always been impressed. To my mind, Wise offers a best-in-class service.

Secondly, the company, which now has over 10m customers, is growing at a rapid rate. For the year ended 31 March, revenue came in at £421m, up 39% year-on-year. For this financial year and next, City analysts forecast revenue of £532m and £671m respectively. That represents top-line growth of 26% per year.

Third, unlike many smaller FinTech businesses, Wise is already profitable. Last financial year, it delivered a profit of £30.9m. Return on capital employed – a key measure of profitability – was 11.1%, which is solid.

3 risks that could hit the share price 

However, I do have some concerns about Wise shares. My number one is in relation to competition. In the years ahead, Wise is likely to face intense competition from rivals such as PayPal, Remitly (which recently had its IPO), Azimo, XE, OFX, Currencies Direct, and more. These companies, and others, could potentially steal market share. Wise certainly offers an excellent service right now, but there’s nothing to really stop a rival creating a superior service.

Another issue is the fact that CEO Kristo Kaarmann was recently fined £366,000 by HMRC for defaulting on his taxes. There’s speculation that this fine could lead to sanctions from the Financial Conduct Authority (FCA). This is one of the reasons Wise’s share price has dropped. It adds a bit of uncertainty.

Finally, there’s the valuation. At the current share price, Wise sports a forward-looking price-to-earnings (P/E) ratio of 160 and a forward-looking price-to-sales (P/S) ratio of about 25. These figures are quite high, to my mind.

I think Wise deserves a higher valuation because it’s growing rapidly and already profitable. However, the current valuation doesn’t leave a margin of safety. To put these valuation figures in perspective, FinTech giant PayPal, which I own shares in, currently has a forward-looking P/E ratio of 56 and a forward-looking P/S ratio of about 12.

Wise shares: should I buy?

Weighing everything up, I’m happy to leave Wise shares on my watchlist for now. I do like the company. However, I’m not 100% convinced the stock offers an attractive risk/reward balance right now.

All things considered, I think there are better UK stocks I could buy.


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.

Edward Sheldon owns shares of PayPal Holdings. 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

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

Around a 15-year high, is Barclays’ share price still too cheap to ignore?

Barclays’ share price is at a level not seen since 2010, but price and value aren't the same thing, so…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

47% below fair value and with an 18% earnings growth forecast, should investors consider this FTSE retail institution now?

This FTSE 100 British retail institution lost its way for a while but has bounced back in recent years, and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Lloyds share price: up 40% this year, is it time to take profits?

The booming Lloyds share price is up nearly 40% in 2025, outperforming its UK banking peers. Our writer asks whether…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

If the stock market crashes tomorrow, here’s what I’ll do with my portfolio

A stock market crash can feel terrifying. Here’s why staying calm matters – and how this recovering FTSE 100 company…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Prediction: in 12 months the smashed up Diageo share price could transform £10,000 into…

Harvey Jones has taken a big hit on his Diageo shares but forecasts suggest next year may offer something to…

Read more »

Aviva logo on glass meeting room door
Investing Articles

Will the Aviva share price reach £10? Here’s what needs to happen

With profits potentially set to double by the end of 2026, could the Aviva share price do the same and…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

After crashing 60% this FTSE value stock looks filthy cheap with a P/E of just 9.2!

The FTSE's filled with value stocks, but one company in particular is trading at a 50% discount to its historical…

Read more »

Mature black woman at home texting on her cell phone while sitting on the couch
Investing Articles

I expect this stock to grow faster than the Rolls-Royce share price over the next 5 years

The Rolls-Royce share price has surged but I don’t believe it will grow as fast as this FTSE 100 peer…

Read more »