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About Shift4

I don’t know what it is, but there’s just something about the underdog that I just instantly love.

Perhaps it’s because the underdogs are usually those that put their heads down, stay out of the spotlight and just straight up get their work done, and most importantly, not only strive to, but achieve results.

Dr. Michael Burry is that dude in the investment world.

Candidly, he is regarded as sort of an outsider in comparison to other famed money managers (think the Ken Griffins and the Dan Ochs of the hedge fund space, among others), which frankly puzzles me being that Dr. Burry was one of the few to avoid the allure of the subprime mortgage mania throughout circa 2007-2009, in fact, maintaining so much conviction in the demise of the housing markets both in the United States and across other nooks of the globe, brilliantly utilizing a rather exotic financial instrument known as a credit default swap (CDS), and through the efforts of himself and his rinky-dink crew of researchers and analysts, reportedly profited around $725 million for his fund’s investors, personally profiting somewhere in the neighborhood of a staggering $100 million.

I just love it when the “idiots” prove the masses wrong.

As immaculate as this trade was, he sort of fell of the face of the planet and while that’s likely largely due to his private personal nature, I think the main reason Burry is not as highly regarded is because, for better or worse, he is far from flashy and is inordinately blunt and direct in his dealings. From my perspective, this is exactly how any professional investor ought to be, as Burry is a true investor’s investor.

Specifically, nowadays it seems as though anyone who goes into the field of finance is void of an actual passion for digging into a company’s finances, looking for value where it may or may not be found and finding conviction through objectivity, and most importantly, loving the game for exactly what it is.

Also, while I am still somewhat on the subject of Dr. Burry, for those that are in the boat of “he’s a bad person because he profited from the demise of the global housing market,” sure, the headline can be deemed as icky, but at the end of the day, Dr. Burry was just doing his job and it is my opinion that when someone is entrusted with many millions upon millions of other people’s and institutional dollars, morality should have nothing to do with investing, but rather managers should focus intensely on finding ways to carve out alpha, or in other words, find opportunities to not meet the market, but beat the market, and that’s exactly what Burry has done for quite some time now.

All of this to say, when Dr. Burry’s portfolio speaks, I tend to listen and get crackin’ on my research shortly thereafter.

Maintaining a nearly 14% weight in his fund’s entire, highly concentrated portfolio, it seems as though Burry is quite attracted to the growing (in terms of overall market presence) payment processing platform, Shift4 Payments.

Headquartered in Center Valley, Pennsylvania, Shift4 is in the business of, well, payment processing, and for those who have been reading my articles over the years, you know that I’ve already written on some of the company’s competitors, Square being one its primary foes.

This being the case, it should be fairly clear at this point that Shift4 generates revenues through imposing a few different types of fees onto its clients, primarily transaction fees along with the sale or leasing out of hardware (Shift4 receives a monthly payment for giving its customers access to both its software and hardware) for its merchants to use as their point-of-sale (POS) equipment at their respective venues, also providing a variety of other plans and services, including supplemental revenue streams such as its pay-at-table offerings available to its dining partners and other relevant merchant customers.

And boy does this company serve a lot of different venues and industries, whether it is the operator of a local ball game or a prominent restaurant chain, and so many more types of businesses and other organizations, Shift4 is undoubtedly growing its presence in payment processing and it feels as though you’re just not as far away from one of their devices as you might think. 

Although it is indeed growing its presence, I’d be remiss if I didn’t make it clear that this company operates in a highly competitive industry, necessitating it to constantly innovate, which it has done an excellent job in doing thus far, but staying relevant requires a significant amount of long-term capital, and we will get a better picture of this company’s efficacy in this respect as we delve into the company’s hard numbers momentarily.

Some of the company’s more threatening competitors include the likes of Global Payments, Nuvei, Adyen, PayPal, Stripe and, of course, Square, and the last thing I’ll say before letting the numbers talk is this company is far from being resistant to economic pressures.

Being a company that asserts a business model that derives the majority of its revenues through consumer payment activity in largely discretionary spending channels, it is tough for anyone to unequivocally claim that Shift4’s revenues won’t experience some softening as consumers pare back on non-essential spending.

All I’m saying is when the economy really begins to sour, less folks are going to be going out and about and simultaneously far less inclined to spend money at the bar and are going to be more focused (hopefully, at least) on saving money after they pay their non-discretionary expenditures, like their rent, utilities and groceries.

Now, let’s get into Shift4’s core financials so as to devise an ultimate opinion regarding whether or not the company’s stock (NYSE: FOUR) is worth looking further into and perhaps putting on your investment wishlist.

Shift4’s stock financials

According to its prevailing market capitalization, Shift4 Payments is a $7.71 billion enterprise with a directly correlated stock price of $86.99, a price-to-earnings (P/E) ratio of 52.81 and no currently distributed regular annual dividend paid to its shareholders for the time being.

With this preliminary data, it can be found that Shift4’s stock is a bit pricey relative to its intrinsic value, primarily referencing the commonly held price-to-earnings relative valuation benchmark, holding that a security with a price-to-earnings ratio higher than 20 indicates that said security is overvalued with respect to the sum of the company’s parts, with at exactly 20 indicating that a security is trading at fair value, or exactly what it’s worth. Nevertheless, we’ve seen a few instances in which recent and projected revenue growth merits paying a P/E premium for an ownership stake in a company, and this might just be the case with Shift4, even though this is admittedly a bit of a subjective matter.

In the case of the company’s lack of dividend, I’m hardly surprised and you shouldn’t be either, as Shift4 ought to hold onto as much cash as it can so as to sustain growth, remain competitive and on the lead of the payment processing technology curve.

It will likely be a long time until this company pays out a regular annual dividend, that is, if it elects to do it at all at any point in the future.

Regarding the overall shape of the company’s balance sheet, Shift4’s management team is responsible for tending to and strategically allocating nearly $3.4 billion in terms of total assets as well as $2.7 billion in terms of total liabilities, hinting a bit at the company’s growth, as it has admittedly tacked on a notable amount of liabilities (with particular respect to its assets), however, this doesn’t scare me at all for the time being, since everything leading up to this point has alluded to the fact that Shift4 is a growth company and when you’re growing both your base of software and hardware at the scale at which this company is, it is only natural that aggregate liabilities become a bit high.

Regardless, I’m still glad to find that the company’s total assets outweigh its total liabilities, allowing the company to continue financing growth, and responsibly at that.

As it relates to the company’s income statement, Shift4’s annualized revenues spanning between and during 2019 and 2023 have shown a healthy, growth-oriented trajectory, growing each and every year, starting off in 2019 at a base of $731 million, rising each and every subsequent year to its latest disclosed figure of just north of $2.5 billion, as reported in 2023.

While this is certainly a rather elementary byproduct of the company expanding its operational footprint and acquiring more customers around the United States and abroad, it is also the case that Shift4’s customers have also been indulging in and continuously adopting towards the firm’s premium offerings, including its rebranded in-house e-commerce solutions platform, Shift4Shop (formerly known as 3dcart, prior to being acquired by Shift4), which provides basically anyone the tools to start their own online store, directly competing with Shopify.

This tangible e-commerce adoption is frankly fantastic to see, in addition to its already strong core payment processing arm.

When it comes to the company’s cash flow statement, and predominantly how much cash it is going through in order to attain these growing annualized revenues, the actual premise of the preceding statement was all too remarkably false, as Shift4, in terms of total cash from operations, hasn’t been bleeding any cash between 2019 and 2023. Specifically, the company’s total cash from operations have spanned between a low of $3 million (2021), which makes sense given the state of the world at the time and just how much Shift4 and many other companies had to invest and reinvest to keep their operations not only sustained, but merely afloat, with a relative cash from operations maximum of $388 million, as reported in 2023, being probably the largest cash from operations delta (range) I’ve ever observed in any of my hundreds of previous stock analysis articles.

This is yet again another definitive positive, but I deem this one to be the belle of the ball, as for Shift4 to have grown the amount of cash it extracts from its business operations at this significant of a rate and in such a short period of time, a multitude of possibilities come into the picture. For example, the company can gradually clean up its balance sheet with ease as well as reinvest into its core business operations, lending itself a great ability to be a threat towards its aforementioned competitors, among other positives.

Shift4’s stock fundamentals

As it is shown on Charles Schwab’s brokerage platform, Shift4’s net profit margin stands at 5.10%, which lies generally within the middle of the road with respect to its publicly traded competitors, with Wex boasting a net profit margin of 9.32% while Block Incorporated (the parent company of Square) clocked in a figure of 3.34%.

When accounting for the company’s recent and likely continued growth, I am simply grateful for the fact that Shift4’s net profit margin finds itself in the green and not the red, and from a more longer-term perspective, I think this company’s net profit margin should be expected to modestly grow as it continues optimizing its operations while growing, carving out even more cash in the long run.

Should you buy Shift4 stock?

While I am never usually the largest of fans when it comes to potentially investing in payment processing companies, make no mistake about it, I think Shift4 Payments is the real deal, and I can see why Dr. Burry has a vested interest in this company’s success through a sizable ownership stake in the company’s shares (NYSE: FOUR).

Even in the face of some negative consumer sentiment throughout the last handful of years, this growing payment processor has looked in adversity’s face and laughed.

Still, it would be irresponsible for anyone to instantly assume that the company is unwaveringly recession proof.

All things considered, however, the company’s balance sheet is in solid shape, its revenues have been growing at impressive rates, its total cash from operations have been kicked into high gear and continue trending upwards, its net profit margin has solid footing and although its current price-to-earnings ratio indicates that one would technically be overpaying for an ownership position in the company, given these figures, I largely disagree, holding the opinion that Shift4 has a lot more giving to do.

Hence, the “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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