Paya Holdings Inc. (NASDAQ: PAYA) is the largest payments company you have never heard of. The company went public in October via a SPAC merger, before SPACs became the mania they are today.
Now, it's about to make waves, and you will want to be ready before that happens.
Paya serves mostly middle-market companies and institutions that need payment services. It is currently in several markets, including business-to-business, non-profit, faith, government, utilities, healthcare, and education. Paya provides these companies with integrated payment and commerce solutions through it is not in the spotlight, Paya processed $31.4 billion in payment volume in 2019. This made it a top-10 payments company by volume.
Paya now has over 100,000 merchant customers using its services.
Since 2018, Paya has made three acquisitions to expand into new markets and build payment volumes. While no new deals have been announced, we consider it highly likely that Paya continues to use mergers and acquisitions (M&A) as a growth strategy in the years ahead.
Electronic payments are a growth story that is going to be around for a long time. The pandemic accelerated electronic payments as no one was out and about spending cash. Customers did everything via e-commerce, and that requires a card or, in some cases, direct ACH payments from your bank account.
Helping churches, hospitals, schools, charities, and state and local governments use electronic payments is a massive market, and Paya is quickly emerging as a leader in these markets.
Here's what you need to know about the stock.
What Paya Is Doing Behind the Scenes
Three key events occurred in 2020 that are going to help accelerate growth for Paya over the next few years.
The first event was forming a new relationship with one of the largest automation software providers for city and county government agencies. This is an enormous underserved market that could help drive earnings growth for some time.
In early October, Paya acquired the Payments Group in a transaction that should add around $10 million in annual revenue. The Payments Group provided payment services to courts and utilities in Texas and other southern states.
Finally, Paya announced an ACH deal with a division of one of the United States' largest banks that should add about $8 billion in annual payments volume. That's a 25% increase in volumes that is going to drive massive top- and bottom-line growth.
The bottom-line question for us now is whether you should buy Paya stock.
Here's your answer...
Should You Buy Paya Stock?
We think the stock has at least 50% upside based on several considerations.
First, the backdrop for payments stocks has never been better. The death of cash is a hot story, which will attract buyers to the stock.
The focus on underserved markets like government and churches gives Paya a massive growth runway for several years. There is nowhere near as much competition in these markets right now, so Paya has a considerable edge.
The payments industry is seeing massive consolidation and will continue to do so for a long time. Paya could make deals that add tens of millions in profit to the bottom line and grow the company via M&A.
Given Paya's presence in underserved markets with massive growth potential, it's not unthinkable that larger competitors would make a bid for the company.
Finally, before the SPAC deal, Paya had a private equity investor, GTCR Capital, that reinvested its cash from the deal back into the company. It still owns over 47% of Paya.
Over the next five years, as much as 14 million shares of common stock may be issued to GTCR if the shares trade above specific price thresholds of $15 and $17.50 per share for 20 out of any 30 consecutive trading days.
That's over 200 million good reasons to help management focus on whatever needs to be done to move this stock price higher.
Technically speaking, the stock has pulled back in recent weeks, but it appears to have bounced in the last few weeks. The 14-day relative strength index bottomed right at 30 and is not moving higher. If the stock can penetrate the 50-day moving average in the next week or so, Paya shares should climb toward new highs over the next few weeks.
There is strong price support right around the $11.50 area where the stock stopped and reversed last week.
Paya could become an even bigger force in payments or become a division of a much larger payments company. Either outcome would make us money.
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