We came across a bullish thesis on Shift4 Payments Inc. (NYSE:FOUR) on ValueInvestorsClub by MississippiCo. In this article, we will summarize the bulls’ thesis on FOUR. The company’s shares were trading at $63.53 when this thesis was published, vs. the closing price of $109.14 on Jan 03.

A businessman at a smart POS terminal, demonstrating contactless payment methods.

Shift4 Payments, Inc. provides software and payment processing solutions in the United States and internationally. The payment platform is omnichannel and accepts multiple payment options like credit card, debit card, contactless card, QR Pay and mobile wallets. It also offers gateway services and value-added software solutions to businesses.

FOUR has been growing at 25%, much higher than the 7% CAGR in the payments market predicted by McKinsey. The scaling of operations has led to a decline in Net Revenue per dollar of transaction (0.6% vs 0.08% at IPO) primarily due to an unfavorable product mix. The market has put more emphasis on the margin shrinkage due to the latest acquisitions instead of evaluating the robust organic growth, leading to suppressed valuations. The company is now focusing on larger customers to provide a more defensive revenue stream. Currently, it has a transaction volume of $1 million per client, implying that most of its business is generated from small and medium businesses.

The impact of these acquisitions should be clear from 2025 and the discounted valuation seems unfair since the company continues to grow and offers a better FCF conversion. Historically, FOUR has been successful in implementing M&A and has benefitted from volume growth through cross-selling opportunities. There is a potential for earnings to increase by 2x in the next three years. While the market may be correct in forecasting lower EBITDA margins, high volume and a more reliable customer base would lead to growth in final EBITDA figures.

FOUR was offering 2.5 times Multiple on Invested Capital (MOIC) when the report was first published. Since then, the stock has risen almost 70%. Even after this, the potential MOIC is 1.5x, making scope for a further rise in share prices.

While we acknowledge the potential of FOUR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FOUR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.