Looking across the pond, I see most of my favourite US shares are currently trading at nosebleed valuations. That’s why I’ve been hunting through the London Stock Exchange for UK stocks to add to my ISA portfolio in July.
One I keep coming back to is Wise (LSE: WISE), as it has many of the things I look for in a growth stock. Here are five that have persuaded me to invest in it.
Huge market opportunity
The first thing I ideally want to see is a very large total addressable market. With Wise, we certainly get that, as it operates in a global cross-border payments market that’s estimated at £32trn annually!
This gigantic market is made up of people sending money abroad, businesses paying overseas suppliers, and banks transferring money. Wise moved £145.2bn last year, which equated to about 5% of personal cross-border transfers, but less than 1% for small and medium-sized businesses.
The company’s infrastructure is designed to replace outdated transfer systems through much faster times and far lower fees. It’s aiming to eventually move trillions. If it can keep expanding its share even modestly, Wise could become much larger in future.
A profitable enterprise
The second attractive feature here for me is that Wise is already profitable. So this isn’t a jam-tomorrow growth story.
Last year, the firm reported a net profit of £417m — 18% year-on-year growth — on underlying income of nearly £1.4bn.
Looking ahead, Wise has stated that it intends to balance investments for growth with maintaining a healthy profitability. It’s aiming for a 13%-16 % underlying pre-tax profit margin over the medium term.
Valuation
One upshot of this is that we can assign Wise a price-to-earnings (P/E) ratio. Based on forecasts for the firm’s next financial year (starting in April), the forward-looking P/E multiple is 29.3.
Admittedly, this premium valuation adds an element of risk. If Wise’s growth disappoints, or a sluggish global economy negatively impacts cross-border payment volumes, the stock could sell off pretty sharply. Competition also exists out there.
That said, Wise is still cheaper than other other disruptive FinTech stocks like Adyen (42.7) and SoFi Technologies (68).
On balance, I would say that the stock is not overvalued relative to the company’s future growth potential.
Founder-led
Next, Wise is led by co-founder CEO Kristo Käärmann. I prefer to invest in growth companies that are led by founders. They often — though not always — focus on the long term rather than obsess about the next couple of quarters.
Wise is driven by a mission to move money quickly and cheaply, without borders. Käärmann regularly talks about what Wise plans to do over “the next 10 years“.
This is exactly the long-term thinking I want to see from the companies in my portfolio.
Doing things differently
Finally, I like that Wise is choosing to pass on lower fees to its customers as it scales.
Last year, it reduced its cross‑border take rate to 0.53% from 0.67% the year before. It intends to move this even lower in the years ahead.
Wise is intentionally sacrificing some short-term profitability for long-term market share gains. As the CEO argues: “This strategy of continuously lowering our fees makes it harder for anyone to compete.”
For these five reasons, I think the stock is worth considering today.
