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Steer clear of Nuvei Corp, this portfolio manager says

You’re on the wrong track if you’re thinking now’s the time to be buying Nuvei Corp (Nuvei Corp Stock Quote, Charts, News, Analysts, Financials TSX:NVEI). That’s according to John O’Connell of Davis Rea who says this is one stock that’s too big of a risk right now.

Montreal-based payments company Nuvei finished Thursday up six per cent after plunging on Wednesday after the release of a short-seller report. The stock lost almost $10 billion in terms of market value as investors reacted to a report from Spruce Point Capital Management, known for issuing reports on companies on which it has a short position. 

In this case, Spruce Point’s report made claims questioning both the previous dealings of some of Nuvei’s executive and the clarity of management’s disclosures of the company’s revenue and earnings. 

“Buyer beware: Nuvei’s financial disclosures are weak and we believe results are being temporarily enhanced from concentrated exposure to high risk gaming and eCommerce,” reads to Spruce Point report. 

The report alleges two acquisitions by Nuvei, SafeCharge and Smart2Pay, were “under pressure” before being bought but that post-transaction financials from Nuvei have painted a too-rosy picture of how the additions quickly contributed to margin improvements for Nuvei.

The report claims NVEI should be trading at a discount to its fintech peers and that there is a 40-60 per cent downside risk to the name. The stock did, in fact, drop exactly 40 per cent of its value on Wednesday after the report was released.

Spruce Point had issued a report in September on another young Canadian tech company in Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD), which was on a huge run leading up to that point. The report and then a poorly received quarter caused LSPD to lose about 60 per cent of its value in the span of two and a half months.

Looking at Nuvei’s current predicament, O’Connell says the outcome is really a feature of the high-growth tech sector.

“This a stock like Lightspeed. There was a negative report out [Wednesday] I don’t know whether it’s true or not — it sounds too bizarre to be true,” said O’Connell, chairman and CEO of Davis Rea, who spoke on BNN Bloomberg on Wednesday. 

“These are fast growing highly specialized businesses. They’ve caught the attention of investors,” he said. “The insiders have been selling the stock ever since it went public. They’ve made a lot of money.”

Nuvei, which provides mobile commerce and e-commerce solutions including payments services, analytics and risk management, came out with a big IPO in September 2020 and started climbing right off the bat, tripling in value over its first 12 months on the NASDAQ and TSX exchanges. The stock had been pulling back more recently along with many names in the broader payments and fintech spaces.

But business appears to be booming for Nuvei, which last month reported third quarter financials which featured an 88 per cent increase in transactions processed by merchants using its platform and a 96 per cent jump in revenue to $183.9 million. Net income was also in the black at $28.0 million compared to a loss of $77.9 million a year earlier.

With the quarterly release, Nuvei raised its full-year guidance, calling for fourth quarter revenue to hit between $204 and $210 million and 2021’s revenue to end up between $717 and $723 million.

“We achieved a number of significant milestones in the third quarter including financial results that exceeded the outlook previously provided, releasing new innovative product solutions, growing our portfolio of alternative payment methods (APMs), announcing several exciting new customer wins, and completing three acquisitions that enhance and expand our addressable market, product capabilities, and geographic footprint,” said Chair and CEO Philip Fayer in a November 9 press release.

For O’Connell, the uncertainties around a name like Nuvei within a still-evolving space like payments should be enough to keep investors at bay.

“I think the fintech business is going to be very competitive business. It’s changing very rapidly,” he said. “These kinds of stocks are just too volatile for me. To be day-trading them right now is a highly risky proposition.”

“You don’t know who’s going to come out and say what next and any stock that can drop by 50 or 60 per cent a day is just too volatile for our clients. And it’s just too high of a growth multiple to to to have a really informed decision,” he said.

O’Connell said especially at the end of the year, portfolio managers are more apt to be selling stocks with a lot of volatility. 

“If these portfolio managers that own these kind of stocks have big gains. This is the kind of stock that can be a tax loss candidate,” he said. “So, I would just caution that it’s very, very volatile and you’re flipping coins in front of a freight train as far as I’m concerned.”

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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