The Motley Fool

As the City says ‘sell’ should I avoid Wise shares?

Bus waiting in front of the London Stock Exchange on a sunny day.
Image source: Getty Images

Wise (LSE: WISE) shares have been under pressure recently after analysts at Citigroup recommended that its clients sell the shares

According to the investment bank, shares in the money transfer business are priced for “excessive long-term growth expectations“.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Their analysis shows that the company would have to achieve a revenue growth rate of 20% per annum for the next eight years to justify its current valuation. As such, the reports suggest that the stock could underperform the rest of the market if it fails to meet these lofty expectations. 

Put simply, it seems as if Citi’s analysts believe the stock is expensive. I am not so sure. Yes, Wise shares might look a bit pricey, but I think it would be a mistake to suggest that the business cannot grow rapidly over the next few years. 

Growth potential

As I have mentioned in the past, Wise has tremendous growth potential. Currently, the company only accounts for a fraction of the global foreign exchange market, and customer numbers are growing every day. 

What’s more, unlike other businesses in the space, the group rewards its customers with lower prices. It continually reduces the amount of money it takes off the top of each transaction as the business grows. This provides better value for consumers and encourages customer loyalty in a highly competitive and commoditised market. 

That being said, Wise shares do appear expensive. Even after recent declines, the stock is trading at a forward price-to-earnings (P/E) multiple of 99.5. The ratio will fall to 76 by 2023, with further earnings growth on the cards. 

This valuation does not leave much room for error. It suggests that the market is expecting a lot from the company. If it fails to meet these lofty group expectations, investors could quickly turn their backs on the enterprise. 

The biggest risk facing it is the threat of competition, I feel. Companies like Western Union and PayPal are larger and far more established. This gives them much more financial firepower to compete with smaller outfits like Wise. 

Still, Wise does have a competitive edge. It is cheaper and more customer-focused. These qualities should help the business fend off threats from larger competitors. They may also help the company outperform the rest of the payments market, supporting its current valuation. 

The outlook for Wise shares

Overall, I think it is worth considering Citi’s opinion of the money transfer business. The stock does look expensive, and the market seems to be expecting a lot from the corporation over the next couple of years. 

Nevertheless, I believe the company has tremendous growth potential, and its unique business model should continue to attract consumers. As such, I am still happy to buy the shares for my portfolio as a long-term growth investment. 

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

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

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.