PayPal and Square selloff has gone too far: BTIG analyst

PayPal and Square selloff has gone too far: BTIG analyst

One analyst thinks that the selloff has gone too far, as shares of once-hot payment-technology stocks, including PayPal Holdings Inc. and Square Inc., have been hammered in recent months.

BTIG analyst Mark Palmer encouraged investors to consider buying the dip on both names as they look for stock-picking opportunities amid the fintech equity carnage. PayPal shares PYPL are down 35% over the past three months, while Square shares SQ are down 22%, and both stocks are down on the year. The S&P 500 index SPX has gained 2.3% in the past three months, and has rallied more than 23% this year.

Palmer said earlier in the epidemic, financial executives argued that the crisis was driving a shift towards greater digital-payment adoption, but he said investors may be wondering whether all that talk of lasting changes was misguided. In a note to clients, Palmer said that investors were not inclined to hold stocks of companies whose volumes and revenues were viewed as vulnerable to a deteriorating operating environment until the next quarterly earnings print, because of the companies' last earnings reports.

He sees the selloff as overdone as PayPal and Square have lost most of the expansion that occurred when the pandemic tailwind was in full force despite bright opportunities ahead.

With speculative froth replaced by reduced expectations that border on derpondency in the cases of PYPL and Lightspeed Commerce Inc., we believe it is worth revisiting the product-market fits that enabled these companies to emerge as market favorites in the first place, Palmer wrote.

He said Square is the most compelling stock within his fintech coverage as the Cash App has the chance to emerge as a super app that bundles various financial services beyond just payments. Palmer is optimistic about the company's pending deal for buy-now pay-later operator Afterpay Ltd. APT, as well as its bank charter, gives Square the flexibility that others won't be able to build out financial offerings.

Palmer also likes Lightspeed shares LSPD, LSPD, noting that the company took advantage of stock price appreciation earlier in the year to make acquisitions. Later in 2021, the shares took a hit after a short seller charged that the company inflated some of its metrics, and after the company's most recent earnings report showed tepid customer growth. Palmer thinks investors may have overlooked a few key positives, although the earnings report may have validated the thesis of the activist short seller who had been making noise about the company during the weeks leading up to the print. For one, while Lightspeed s net customer additions may have disappointed, that figure reflected elevated churn and subscription pauses stemming from renewed lockdowns, while gross customer additions were strong.

A beaten-down stock that looks attractive in Palmer's view is PAR Technology Corp. PAR was down 37% from its all-time high as of the publication of Palmer's report. The stock's current valuation doesn't reflect the fact that its end-to- end restaurant technology offering is exceptionally well positioned to generate strong growth by converting a significant portion of the 70% of the enterprise restaurant market that continues to use legacy cash registers and in-store servers to its cloud-based offering, he wrote.

He believes that there is potential in some smaller fintech stocks that have been unloved as of late and could end up as acquisition targets. Repay Holdings Corp. RPAY, i 3 Verticals Inc. IIIV, Paya Holdings Inc. PAYA, and EVO Payments Inc. EVOP,