Considering the current WEX stock price at $160, is it wise to invest?
WEX (NYSE:WEX), a fintech company known for its payment processing solutions and employee benefit programs, recently announced plans to fund a $750 million share repurchase program using a $500 million note offering, a $500 million term loan, and cash on hand. Additionally, the company aims to repay $250 million in revolving debt and pay related fees. Following this announcement, WEX stock surged 6%. But is it worth buying at its current price of around $160?
In analyzing WEX stock, we compared its valuation with the S&P 500 and looked at its operating performance over the recent years. Our findings suggest that WEX has a strong operating performance and financial condition. Here's a breakdown:
Valuation vs. S&P 500
WEX's current valuation is in line with the S&P 500. The company has a price-to-sales (P/S) ratio of 2.8, compared to 3.1 for the broader market. WEX's price-to-operating income (P/EBIT) ratio is 10.8, while the S&P 500's is 24.4. Similarly, its price-to-earnings (P/E) ratio is 12.3, compared to the benchmark's 24.4.
Revenue Growth
WEX's revenues have seen notable growth in recent years. Over the last 3 years, the top line has grown at an average rate of 18.0%, which is higher than the average growth rate of 9.8% for the S&P 500. In the last 12 months, revenues grew 6.1% from $2.5 billion to $2.7 billion, surpassing the change of 5.6% for the S&P 500. Even in the most recent quarter, revenues grew 2.2% to $666 million, compared to a 7.2% change for the S&P 500.
Profitability
WEX's profit margins are significantly higher than most companies in the Trefis coverage universe. Over the last four quarters, the company's operating income was $688 million, representing a high operating margin of 25.9%. WEX's operating cash flow (OCF) over this period was $605 million, pointing to a high OCF-to-sales ratio of 22.8%.
Financial Stability
WEX's balance sheet looks strong. As of the most recent quarter, the company's debt figure was $4.6 billion, while its market capitalization is $6.4 billion, resulting in a poor Debt-to-Equity Ratio of 61.8%. However, cash (including cash equivalents) makes up $4.3 billion of the $14 billion in Total Assets for WEX, yielding a very strong Cash-to-Assets Ratio of 30.5%.
Downturn Resilience
In the past two economic downturns, WEX stock has fared worse than the benchmark S&P 500 index. For instance, during the Great Recession (December 2007 to June 2009), WEX stock fell 79.0%, while the S&P 500 declined 56.8%.
In conclusion, WEX stock's performance across all parameters is strong, which is aligned with its moderate valuation. This suggests that WEX is an ambivalent stock to buy at its current price, offering little upside but also a strong financial foundation. While it might not be an exciting investment opportunity, WEX's financial stability and solid performance make it a potential long-term holding for risk-averse investors.
Sources and Additional Insights:
The current financial performance data is from Q4 2024 and Q1 2025 reports. WEX's stock price data shows a 52-week low of $146.03 and a high of $244.04. Analysts have assigned a "hold" rating to the stock, indicating cautious optimism due to macroeconomic headwinds and demand-related issues.
WEX's market cap lays between $6 billion and $7.43 billion, reflecting its volatile position in the market. Compared to the S&P 500, WEX's revenue growth, although strong, is generally lower because of its sector-specific challenges. However, WEX's financial health is supported by a strong balance sheet and operational efficiency.
Investors should maintain a long-term perspective when considering WEX as an investment. The company's strategic investments and strong balance sheet position it for potential growth, although with a more cautious outlook compared to the broader market trends of the S&P 500.
Despite WEX's successful $750 million share repurchase program, the company faced layoffs earlier this year, indicating potential cost-cutting measures. The layoffs came amidst the company's strong financials, with WEX revenue surging and valuation remaining competitive with the S&P 500. While WEX's creditline was reportedly increased to support its operations, investors should be aware of these mixed signals.
WEX announced a series of financing moves to sustain its share repurchase program and repay debt. Simultaneously, the company reported layoffs, a move typically taken during times of economic uncertainty or financial stress. This situation might raise questions about WEX's financial health, despite its robust revenue growth and competitive valuation against the S&P 500.
In the wake of WEX's layoffs, investors might want to consider the underlying reasons for the cost-cutting measures. While WEX's strong revenue growth and competitive valuation remain compelling, its creditline increase and the need for financing raise some concerns. Addressing these uncertainties could provide valuable insights for investors weighing the potential risks and rewards of investing in WEX.
The company's solid financial performance and strong balance sheet have made WEX a potential long-term holding for risk-averse investors. However, the layoffs and financing moves have added a layer of complexity to WEX's investment outlook. Investors should carefully evaluate these factors to determine if the ambivalent stock is worth buying at its current price.
