With the deadline for my Stocks & Shares ISA only a few months away, I’m on the prowl to find the best UK stocks to buy to potentially double my money over the long term. With that in mind, I’ve discovered one unlikely company which could have this growth potential. Let’s take a closer look at PayPoint (LSE:PAY).
A UK stock to buy with enormous hidden value?
PayPoint hasn’t exactly been much of a growth stock over the years. In fact, before the pandemic, its share price pretty much hovered around 900p for over five years, with revenue growth stagnating. As a quick reminder, this company provides payment solutions for convenience store owners. So far, this doesn’t sound like much of a growth stock. But is that all about to change?
Over the last two years, management has been rigorously modernising its strategy. The vast majority of its merchant customers are now using its PayPoint One EPoS terminal. This is essentially a glorified checkout system. But it comes equipped with a cloud platform that provides automatic inventory management, a data analysis suite, and direct access to wholesaler price lists to generate and place orders instantly.
Meanwhile, its operations in the cash-first economy of Romania have been disposed of. PayPoint then used the proceeds to make a series of bolt-on acquisitions to improve its existing technology and market reach. For example, the addition of RSM 2000 introduced mobile payment support, while the Handepay acquisition added 30,000 additional merchants into PayPoint’s ecosystem.
Looking at its latest results, its PayPoint One division saw sales surge by 58.5% versus a year ago, pushing total revenue up by 21.3%. Given its pre-disposal average growth rate was basically flat, this is quite a promising sight for the UK stock and its shareholders.
Taking a step back
As encouraging as PayPoint’s performance has been of late, there are some risks to consider. The company operates in a strict regulatory environment. And recently, it ran into a bit of trouble surrounding its relationships with gas & electric companies. Utility firms can use PayPoint’s network of merchants to allow customers to pay bills using cash. However, Ofgem filed an objection against the firm as exclusivity clauses in its contracts were deemed anti-competitive.
Management has since resolved the situation by removing the exclusivity requirements from utility companies and voluntarily paid £12.5m. However, future regulatory intervention will remain a risk for shareholders. And while this particular scenario was dealt with quickly, other situations could be a lot more disruptive and potentially damaging to the business and its reputation.
The bottom line?
So, can PayPoint double my investment? I believe this rests on whether or not management’s new strategy will be successful. At this stage, it’s too early to tell, but the initial performance seen in the last year is encouraging to me. Personally, I remain cautiously optimistic about the future growth prospects of this UK stock. And therefore, I am considering increasing my existing position in this business.
