Online money transfer and investment group Wise has learnt a hard lesson about life as a public company this week, as leading US bank published research on the stock.
US Investment bank Citi, downgraded Wise on Monday citing excessive long term growth expectations in the stock, as the reason for the markdown.
Citi said that the current share price (which based on Friday’s close was 678p) had baked in 20% of compound annual revenue growth, over the next 8 years.
Numbers that were much more ambitious than those for the wider market.
Wise has increased revenues but its also reduced customer costs, or if you prefer its own margins.
Doing more business for less money is not usually viewed as a recipe for success as you need to bolt-on extra volume just to stand still in terms of income or profitability.
The firms venture capital backers may have been happy to soak up operating costs when Wise wasn’t a listed vehicle, but equity investors and the stock market take a rather different approach and Wise shares gapped lower on Monday, to open at 654p before going on to trade as low as 600p.
In fact, Wise posted new six month lows on Tuesday morning printing at 588.60p before recovering to trade at 623p.
Wise is now down -16.20% over the last week and by -38.37% over the last quarter, and in that time it has posted 15 consecutive new lows.
Not all of this can be laid at the door of the Citi downgrade, or even Wise itself, because the market has been hitting unprofitable disruptors and Fintechs pretty hard of late.
Simply put the market thinks that disruptive growth stocks will underperform, in a rising interest rate environment, particularly in the financial sector, where incumbents such as the banks will likely see their profit margins grow and balance sheets expand, as income-earning assets are marked higher
Wise was valued at £8.75 billion when it was listed in London back in July last year, a record valuation for a company coming to the London market through a direct listing, rather than an IPO.
However, in the five months since that listing, the company’s market cap has shrunk to just £6.32 billion and if that’s not to shrink further then the business will need to wise up and demonstrate to the market that it can grow turnover and margins at the same time.