Shift4 is undervalued due to strong fundamentals (growth, profitability) and low valuation multiples relative to its cash flow.

Yeah, maybe it's overlooked or or maybe they're looking right at it and beating it down into the ground, but shift four payments. This is a financial technology company really powering many large venues.

It was definitely [snorts] a big part of the World Cup. Now that the NFL is rank uh ramping up, it is powering a lot of those stadiums, many hotels, actually really large in restaurants as well.

Number two market share there. But this is a company behind the scenes in a lot of places. And the stock is down 67% from its all-time high.

Yeah, it is crazy how much this has been beaten up because if you look at the chart, revenue has grown consistently. I know they do do some acquisitions, uh, but that, you know, consistent growth, which is what you want to see from a company like this.

They've got operating leverage kicking in, so they're becoming more profitable. And yet, the stock is falling at the same time.

And the the framing that I think is really interesting with Shift 4, there's a lot of changes. is a very competitive place in the payments area, but if you think about the competition that's going on in things like AI payments and what, you know, bots are going to be using to maybe buy stuff for us in the future, they're not going to be buying a hot dog at a baseball game for us.

So, this almost seems like an anti-AII play in a lot of ways,

I mean to your point, Shift 4 just continues growing even with the acquisition still posting double-digit organic revenue growth. Now you look at the the revenue growth. I mean it is a little bit hard to follow.

You have network fees, you have volume, right? These are some other growth metrics here. But if we back out the network fees, so this is basically what it costs shift for and then you just look at the revenue growth itself after you adjust for that.

I mean, we're still growing at a very high pace and still looking at fullear revenue growth this year of 25% to 28%. That that's that's a really good growth rate.

Uh, now you also look at adjusted free cash flow projections for the year. Looking at 465 to 475 million in adjusted free cash flow. What are they adjusting for? Well, mostly adjusting for some acquisition related expenses.

So, okay, that makes sense. I mean, those shouldn't be recurring expenses. Those should be onetime things. So, it makes sense to adjust for that. You look at it. I mean, we're only trading at a fraction of that free cash.

I mean, we're looking at around a 3 something market cap versus almost 500 billion in adjusted free cash flow projected for this year. I mean, that that is really huge.

If if you look at the price to earnings ratio, I mean, it does look a little bit expensive, but there's a caveat there. Right now, it did take on some debt to fund a major acquisition.

It has added an incremental 41 million or excuse me, 62 million to its first half interest expenses and it only had 6 million in net income in the first half. So, take that out.

Its net income is potentially 10 times higher if it just didn't have those higher interest expenses from the acquisition.

Yeah. And just to put the forward PE multiple brings in what the estimates are for kind of adjusted earnings per share and that right now is standing at just 7.6. So based on that metric, this is an extremely cheap stock.

Yeah. Yeah. Extremely cheap. And and the reason I do point this out is because Shift 4 isn't like a lot of companies out there. It is really disciplined in paying that debt back down.

And so I do think it's reasonable to say, okay, we're not going to be at this higher level forever. It is going to redirect cash flow, pay this debt back down, and then you're going to get back to a little bit of more normalized earnings.

Very profitable company and very inexpensive. You bring up the forward earnings estimate. Even if you look at its trailing free cash flow, trading at just 10 times its trailing free cash flow.

Yeah. And another way to think about this business is most of the revenue is coming from transactions. So when you make a transaction at a you know let's say you buy a hot dog at a baseball game uh you're they're going to pay that that merchant is going to pay around 3%.

But then 2% of that is going to go to you know banks and Visa or Mastercard whoever is the the credit card operator. There's other fees involved there. So there may be 3% revenue coming in to shift for on each one of those transactions but it's actually a relatively low margin where they make most of their revenue.

And this basically tracks their operating profit is subscription and other revenue. That's the line item that they report. And that essentially as that has grown and this is where you know the more devices you put into the world, the more uh features you build for some of these customers, they're going to pay subscriptions for that and that's going to be a relatively high margin compared to that transaction revenue. So that's how this can be a powerful business.

There's other companies in the space that have a very similar business model, but the thing to think about here is what's the niche? How do you have a real moat? I think that's pretty easy to see with Shift 4.

You know, stadiums, hotels, they're not going to just go shifting, changing what their point of sale system is willy-nilly. You know, if you're looking at restaurants, it's Toast.

So, there's internet companies. It's going to be a company like Stripe. Obviously, not publicly traded yet, but that's kind of the way the business model works. And that's why I think this is one of those ones to to keep an eye on as an investor. obviously not liked by the market at all right now, but you look at the numbers growing consistently, becoming more profitable.

I think the story about potential disruption or this maybe becoming the next PayPal, if you will, uh maybe a little bit overblown from investors.