NVEI is in stage #2. NVEI is my new addition to the portfolio. I was resisting investing in fintech companies as I couldn’t find any diversified enough to give me the comfort of not investing in companies exposed to cryptocurrency only. It is a purely speculative trade. I plan on holding this and selling options against this position (spreads). The stock is now under pressure from a short seller (Spruce Point) who claims a few issues with the company. First, they brag about their correct prediction that the stock would drop by 35% (they called it in December 2021). Then they posted a few issues with the company, such as that Ryan Reynolds didn’t disclose his investment properly and the management had ties to FTX. I think this is not a reason for the additional 50% drop. But I am competing against a bunch of analysts who do nothing the entire day but dig out anything they can about a company of their interest, so I may be utterly wrong. Nevertheless, on the chart, the stock is in stage #2 and may continue recovering if the report turns out to be bogus just to push the stock down (note, short sellers usually post their reports after they open their short positions. And just because they were right once doesn’t mean they will be right again. It may easily be that they remained short and now trying to prevent a short squeeze as the markets, tech, and fintech stock start recovering.

The weekly chart also indicates potential, and the stock may, in fact, recover to the previous levels of $100 – $120 a share. Will it happen? No one knows, but if we take a look at the fair value correlated to the adjusted operating earnings, we see that the stock’s fair value should be around $100 a share by 2025. Today’s fair value is at $63.92 a share, so the stock is undervalued:

However, Spruce Point claims that the stock value is inflated by the company’s buybacks to “channel cash out of business.” If we look at the shares outstanding, this claim doesn’t seem to hold water much. The company was diluting shareholders for years, though nothing significant, just about 2.2% 5-year average dilution. In 2022 it started buybacks at a rate of 1.09%. I do not think that is a reason for fraudulent money drainage claims, and Spruce Point might be just inflating a problem that isn’t there.

The company is increasing its revenue every year. There was a small hiccup in 3Q 2022, but then the revenue improved. The revenue chart below indicates total revenue, not revenue per share, so buybacks do not impact the numbers.

Another claim is that Nuvei’s acquisition of Paya, exposure to cryptocurrency, and inflating customer base will hurt the company and fail. Where does the free cash flow come from if that is the case?

The company has more cash in hand than the debt, and it is paying it off. I consider this a good sign. So, if we summarize the claims of Spruce Point that the company:
1. Was draining money from the coffers by questionable buybacks.
2. Was inflating customer base.
3. Was involved in questionable acquisitions
4. Had questionable ties to failed FTX

Where did it get the cash needed to show positive and growing free cash flow and could keep its debt at a reasonable level without borrowing more money? Consider that this is a fintech company in the realm of high-flying tech stocks that are usually leveraged.

So, yes, the company is new, in an interest rates sensitive territory, in the same category as the PayPal company, it may be fraudulent, and yes, it crashed during the latest bear market (which company didn’t crash?). Still, I think the Spruce Point report is not a very convincing one. I have seen better reports.

I still think that the Spruce Point report is to keep the stock price suppressed as they maintain a short position, and they may want to close it at a better price. I don’t think the stock will drop another 50% (though it may, if I am wrong). So I am taking a small position and will see what happens next. I am also placing a stop loss. If the company drops, I will be kicked out. If it keeps moving higher, I will make money. But I think the company offers a good opportunity.

The stock is now MODERATE BUY
 

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