At 830p is the Wise share price too cheap to ignore?

Rupert Hargreaves explains why he thinks the Wise share price looks too cheap compared to its growth potential after recent declines.

| 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.

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

Image source: Getty Images

The Wise (LSE: WISE) share price has slumped during the past few weeks. After the stock peaked at an all-time high of 1,150p at the end of September, it has been on a downward trajectory. 

Shares in the money transfer business have declined nearly 30% from the high, wiping out virtually all of the group’s post-IPO gains. 

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

The thing is, the stock has been falling even though the company has continued to put out upbeat trading updates. And I think this offers a potential opportunity for investors. 

Growth continues 

Wise’s mission has always been to offer customers money transfer services at a lower cost than the competition. Customers are flocking to this offer as the group’s visibility improves. 

According to its latest trading update, almost 4m customers transferred £18bn through its platforms in the second quarter, up 36% from the previous year. It earned £133m of revenue on these transactions, an increase of 25% from the same period last year. 

Some investors might read these figures and wonder why Wise’s transfer volume increased 36%, but revenues only jumped 25%. The reason behind this is simple. The group has continued to lower costs for consumers. 

Its take rate, or the percentage of money being transferred over its platform that it books as revenue, fell to 0.74% from 0.8% a year earlier. This was a direct result of the company reducing costs for 1.7m customers by 0.08% from last year. 

Wise share price troubles 

With the company’s take rate falling, I can see why the stock has been under pressure. The market has always valued Wise as a growth stock, and if its growth does not live up to City expectations, investors could get restless. 

Wise thinks its take rate will continue to decline. As such, management is forecasting a slightly lower revenue growth rate for the second half of the year. Even though the firm is still projecting revenue growth for the year to March 2022 to be in the low-to-mid-20% range, based on the recent price action, it seems that the City does not think this is enough. 

However, I am prepared to look past these near term issues. Wise’s selling point to customers has always been its low fees.

In today’s incredibly competitive e-commerce environment, it needs to maintain this competitive advantage, or it could be left behind. This is probably the biggest challenge the group faces right now. 

I think that is the mentality behind the company’s decision to keep cutting costs. Even though it will mean investors get a smaller share of the pie, consumers will get a better deal.

As a user of the company’s platform, and a potential investor, I think this offers the best of both worlds. By maintaining the competitive advantage, the number of users should grow, leading to revenue growth over time

This growth potential is the reason why I would buy the stock for my portfolio today and make use of the market’s short-term outlook. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

A person holding onto a fan of twenty pound notes
Investing Articles

3 top dividend shares to beat a new recession

I believe that good dividend shares are my best approach to keeping my money safe in a recession. Here are…

Read more »

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

Down 80%, this growth stock is a ‘no-brainer’ buy

Growth stocks have faced a torrid time recently. However, after falling 80% since its highs, this FinTech looks too cheap…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett is pouring money into stocks! Here’s a FTSE 100 pick I think he’d buy

Warren Buffett has been investing in several US stocks recently. Here's a FTSE 100 stock I think he'd also be…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

Is the Rolls-Royce share price on the verge of recovery?

A recent trading update showed the company is benefiting from increased flying hours, so will the Rolls-Royce share price soon…

Read more »

Girl showing thumb up, excited about upcoming shopping
Investing Articles

Is now a good time to buy Tesco shares?

After a strong rally last year, the Tesco share price has stalled. Roland Head gives his view on investing in…

Read more »

The BT Tower looming above London's skyline
Investing Articles

3 reasons to buy – and not buy – BT Group shares

The BT Group share price has a rock-bottom valuation right now. Is this a red flag or does it make…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

2 cheap FTSE 100 dividend shares! Should I buy?

These two FTSE 100 dividend shares offer terrific value for money, on paper. Should I load up on them today,…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

5 steps to target a monthly £300 passive income

With his eyes on a target of monthly passive income, here are five steps our writer would take to try…

Read more »