A fintech upstart is dominating the legacy players in this growing sector.
Growth stocks have made a comeback in 2024. I am seeing select stocks shoot up 100%, 200%, or more just this year. This can lead to a sense that growth is happening everywhere and to investor fears of missing out. That can lead to dangerous decision-making.
One of the worst decisions you can make as an investor is to pile into overpriced growth stocks. The recent drawdown in 2021 and 2022 is a prime example of why. Don’t make the same mistake just a few years later in this new bull market. Luckily, there are still buying opportunities out there for growth stock investors, even if they don’t have a lot of available cash to invest just now.
A great growth stock you can buy for under $25 a share today is Remitly Global (RELY 0.92%). I recently purchased shares of this mid-cap fintech stock and think it has many years of growth left ahead.
Making remittances cheap and easy for everyone
Remitly was founded in 2011 with the goal of disrupting the global remittance market, which involves international money transfers for individuals. Legacy players in the industry were charging high fees on money transfers and not focusing on new technologies such as the smartphone as a way to revolutionize the payment industry. The founders saw an opportunity to compete with better technology and lower payment fees.
The company began by focusing on specific country-to-country corridors such as the United States and Mexico and the United States and India. Its strategy worked by building a trusted service for both sides of the money transfer equation. For the sender in the United States, Remitly offered an easy-to-use smartphone application and reasonable payment fees. For the receiver of the money in a place such as India, the company worked with local regulators, banks, and payment distributors to make it as easy as possible for someone to pick up money. This means through a smartphone, cash pickup, or even sometimes a cash delivery to their home when safety may be an issue.
This strategy has worked wonderfully, which is illustrated by Remitly’s consistent user growth. Active users grew 35% year over year to 7.3 million in its most recent reported quarter, driven by its smart marketing and product innovation. Revenue grew 39% year over year to $336.5 million, a much faster rate than competitor Western Union.
Plenty of market share left to gain
With hundreds of millions of remittance customers around the world and only a 3% market share today, I think there is plenty of runway for Remitly to keep growing over the next decade. It can further reinvest to improve its product, expand to more corridors, and lower its payment fees with scale. All of this will help grow its consumer value proposition versus the competition and allow it to gain even more market share.
The company is barely scratching the surface outside of its United States corridors. Revenue from countries not named Canada or the United States has grown at a 100% annual rate since 2019, hitting $272 million over the past 12 months.
Over the long term, Remitly has plans to move beyond just remittances and become a global personal finance application. It has a new app called Remitly Circle that lets users store and earn interest on funds instead of just sending money. This will give Remitly a much longer runway for growth if it can grow its product offering for millions of users.
RELY Revenue (TTM) data by YCharts
Why this is a smart growth stock to buy
Remitly’s stock price is up 40% in the last month after posting more strong growth in its latest earnings report, but its performance remains close to flat in 2024 and it is trading off more than 50% from all-time highs set near its initial public offering (IPO) in 2021. With a market cap of just $4 billion, I think there is plenty of room for this mid-cap stock to keep compounding in the coming years.
The company is not profitable today, but that is simply due to its heavy marketing spend and investments in product development. Its gross margin keeps expanding with scale and is close to 60% as of the last 12 months. Once the business matures, it can generate a 20% profit margin or more with this high gross margin and an asset-light business model.
Today, Remitly generates just over $1.1 billion in revenue. If it keeps up this strong revenue growth as I expect for the next five years, I think it is reasonable for the company to hit $2.5 billion in revenue five years from now. A 20% profit margin on $2.5 billion in revenue equates to $500 million in bottom-line earnings in five years, which would be a price-to-earnings ratio (P/E) of 8 based on its current market capitalization.
A fast-growing business like Remitly deserves to trade at a much higher P/E. For this reason, I think Remitly stock is a slam dunk growth stock to buy with a price under $25 a share. Buy and hold this stock and watch it become the dominant remittance player of the next decade.
Brett Schafer has positions in Remitly Global. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
