Shares in Wise (LSE: WISE) had been soaring since the company came to market in July, reaching a 30% gain by September’s peak. They declined a bit following that, but were still up 25% by 8 October. Then came the big Wise share price crash, and we’ve since seen a 16% slump.
At 920p, Wise shares are now up just 15% on their opening price of 800p. Does that mean the early bullish investors were wrong, or does it give me a new buying opportunity after I missed my early chance?
As my Motley Fool colleague Rupert Hargreaves has explained, this latest fall seems to be all about the company’s chief executive, Kristo Kaarmann. He’s been fined by HMRC over tax issues, and there’s been speculation that the Financial Conduct Authority might get involved.
But as Rupert points out, it’s all about Kaarmann personally, and there’s been no suggestion that the company has done anything wrong. On that score, the Wise share price crash doesn’t appear justified to me. But what’s so good about it that I might want to buy?
Cheap money transfer
Wise, founded by Kaarmann and Taavet Hinrikus, is in the electronic money transfer business. The key thing is that Wise’s technology bypasses the usual banking transactions, avoiding much of the cost. Escaping the grip of the banking middlemen is highly desirable, and it’s one of the benefits touted for cryptocurrencies, for example.
It’s a big market too, with the high profile PayPal dealing with £730bn in transactions in 2020. Wise is tiny by comparison, currently handling only around £54bn per year. Can Wise grow to reach PayPal levels of transfers? Well, it’s cheaper than PayPal, cheaper than the banks, and it’s easy to use.
Next growth phase
In its Q1 update, the company told us it was “able to reduce pricing by 2bps to 0.67%, dropping prices for 19 currencies while also delivering 38% of all transfers instantly.”
I really can see the appeal to people who transfer money internationally. I do that myself every month, and I’m considering switching to Wise.
Looking forward, the update spoke of “the next phase of our growth to tackle the problem of the £150 billion the world continues to pay in hidden fees each year.” That’s a lot of charges. And it hints again at the potentially huge market that Wise could tap in the future.
Does that mean the Wise share price’s future is assured? Well, no, and I see a number of risks. One is the V word — valuation. It comes up with just about all growth shares.
Wise share price valuation
Wise recorded £31m profit last year, so at least that’s positive territory. But we’ll need a new year of earnings, with the enlarged share capital, to get a feel for the usual valuation metrics.
I have another fear. What’s to stop competitors coming up with cheaper services? I mean, will PayPal, MoneyGram, Western Union… and all the rest sit idly by and watch Wise mopping up the market?
Knowing the risks, I still think I see a buying opportunity. I’ll probably become a Wise customer. And, at the current Wise share price, very possibly a shareholder too.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings. The Motley Fool UK has recommended the following options: long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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