To make a quick international money transfer, I just used Wise (LSE: WISE). And I can say with confidence now, that the service is indeed smooth and hassle-free. That is one reason why I decided to write about the company, which recently got listed on the London Stock Exchange.
The Wise share price is on a roll
Unlike some other market debuts in the recent past, most notably the food delivery provider Deliveroo, it has been good going for the Wise share price. It started trading at 800p and by the end of the first day, its shares were up 10%. It has remained elevated since and as I write, it is up 20% from its starting levels to 960p.
I can see where the investor enthusiasm for Wise shares comes from. Its latest trading update is positive, with a 43% increase in revenues in the first quarter of its financial year (April-June), compared to the year before. This adds to its consistent revenue growth over the past couple of years.
It also stands out among other fast growing publicly listed companies in that it is profitable. Others I have covered recently focus on growth and not profits for now. These include other delivery companies like Ocado and Just Eat Takeaway. But Wise shows that achieving both together is possible. At least in the segment it operates in. And the growth is impressive too. Just last year, it doubled its profits.
Much as I like its product as well as its financials though, I think it will be up for stiff competition. I think over time banks maybe able to catch up to the pace of its transfer. Also, as long as there are big profits to be made, more such fintech companies will appear.
Its price-to-earnings ratio is also quite high at 300 times. This is hard to justify for any company, even one that has doubled its profits in the past year like Wise has.
Consider Paypal, which is among the best known names in money transfer and is a financially healthy company too. It also has a long and rewarding history for investors at the stock markets. But, it has a P/E of 68 times, which is minuscule compared to Wise. Why would I not buy its share instead?
Also, the payments industry has very recently been hit by the almost unbelievable unfolding of events associated with the Germany payments star company Wirecard, which has now been declared insolvent. In light of this, I think it is possible that regulations for these businesses could be progressively tightened. This in turn, could impact their operations.
On the whole, I like the company but also see the risks to it. Keeping these risks in mind, I think the Wise share price should be significantly lower. Otherwise, other payment companies’ shares would be far more attractive. I would not buy it right now.
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Manika Premsingh owns shares of Deliveroo and Ocado Group. The Motley Fool UK owns shares of and has recommended PayPal Holdings. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. and Ocado Group and 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.