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Why Shift4 Payments Stock Crashed Today

The Motley Fool · 1d ago

Key Points

  • Shift4 is growing sales double-digits and growing earnings faster than sales.

  • Free cash flow guidance looks strong for the year.

Payment processing solutions company Shift4 Payments (NYSE:FOUR) lost an unlucky 13% through 12:15 p.m. ET Thursday despite beating on earnings this morning.

Analysts had forecast Shift4 to earn $1.37 per share, but the payments company earned $1.49 per share (adjusted for one-time items). Gross revenue after network fees, however, appears to have missed the mark. Wall Street was expecting more than $653 million -- but Shift4 delivered only $648 million.

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So investors sold off the stock.

Red downward-trending line graph with arrow on a dark blue grid background

Image source: Getty Images.

Shift4 Q3 earnings

Is that fair -- punishing Shift4 for a sales miss when it still managed to earn more profit than expected?

That depends. Gross revenue at the company increased 12%, and "payments based revenue less network fees," which Shift4 calls its "north star," increased 18%. GAAP earnings per share, meanwhile, more than doubled to $0.37 -- a lot less than the adjusted number, but still impressive growth. Free cash flow -- cash from operations minus capital spending and capitalized software costs -- was $186 million, so up 39% year over year.

What's next 4 Shift4 stock

All of these are impressive numbers. Investors may, however, be focusing more on what Shift4 says it will earn than on what it has already earned. Turning to guidance, management says 2026 will wrap up with about $2.45 billion in gross revenue less network fees, up 24% year over year. Non-GAAP profits will be about $5.10, down from prior guidance, while Shift4's own version of "adjusted free cash flow" calls for about $470 million in cash profits for the year.

While I may quibble with that latter calculation, a stock valued at $3.2 billion but generating $470 million in any form of FCF looks cheap at less than 7x FCF, especially with revenue growing double-digits. Shift4 stock seems to be getting punished unfairly today.

I think it's a growth stock -- and a buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shift4 Payments. The Motley Fool has a disclosure policy.