Shift4 Payments Inc (FOUR): A Deep Dive into Its Performance Potential
Long-established in the Software industry, Shift4 Payments Inc (NYSE:FOUR) has enjoyed a stellar reputation. It has recently witnessed a surge of 8.55%, juxtaposed with a three-month change of -9.03%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Shift4 Payments Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 4/10
Profitability rank: 3/10
Growth rank: 0/10
GF Value rank: 8/10
Momentum rank: 9/10
Based on the above method, GuruFocus assigned Shift4 Payments Inc the GF Score of 61 out of 100, which signals poor future outperformance potential.
Shift4 Payments Inc: A Snapshot
Shift4 Payments Inc is a provider of integrated payment processing and technology solutions. The company offers software providers a single integration to an end-to-end payments offering, a powerful gateway, and a robust suite of technology solutions (including cloud enablement, business intelligence, analytics, and mobile) to enhance the value of their software suites and simplify payment acceptance. The Shift4 Model is built to serve a range of merchants from small-to-medium-sized businesses to large and complex enterprises across numerous verticals, including lodging, leisure, and food and beverage.
Financial Strength Analysis
Shift4 Payments Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 3.13 positions it worse than 86.26% of 1550 companies in the Software industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 2.12, which is below the safe threshold of 2.99. Although this does not imply immediate danger of financial distress, the stock may face some financial struggles if the Altman Z-score drops below 1.81.
Additionally, the company's low cash-to-debt ratio at 0.37 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 4.97, which is worse than 97.47% of 2099 companies in the Software industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations.
Additionally, the company's debt-to-Ebitda ratio is 4.91, which is above Joel Tillinghast's warning level of 4 and is worse than 84.62% of 1391 companies in the Software industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Profitability Analysis
Shift4 Payments Inc's low Profitability rank can also raise warning signals. Additionally, Shift4 Payments Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 25.10; 2019: 23.71; 2020: 23.18; 2021: 20.36; 2022: 23.59. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Shift4 Payments Inc seems to falter, as evidenced by the company's low Growth rank.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While Shift4 Payments Inc has a commendable history in the Software industry, its current financial indicators suggest that it may struggle to maintain its performance in the future. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
