At 830p is the Wise share price too cheap to ignore?

The Wise (LSE: WISE) share price has slumped during the past few weeks. After the stock peaked at an all-time high of 1,150p at the end of September, it has been on a downward trajectory. 

Shares in the money transfer business have declined nearly 30% from the high, wiping out virtually all of the group’s post-IPO gains. 

The thing is, the stock has been falling even though the company has continued to put out upbeat trading updates. And I think this offers a potential opportunity for investors. 

Growth continues 

Wise’s mission has always been to offer customers money transfer services at a lower cost than the competition. Customers are flocking to this offer as the group’s visibility improves. 

According to its latest trading update, almost 4m customers transferred £18bn through its platforms in the second quarter, up 36% from the previous year. It earned £133m of revenue on these transactions, an increase of 25% from the same period last year. 

Some investors might read these figures and wonder why Wise’s transfer volume increased 36%, but revenues only jumped 25%. The reason behind this is simple. The group has continued to lower costs for consumers. 

Its take rate, or the percentage of money being transferred over its platform that it books as revenue, fell to 0.74% from 0.8% a year earlier. This was a direct result of the company reducing costs for 1.7m customers by 0.08% from last year. 

Wise share price troubles 

With the company’s take rate falling, I can see why the stock has been under pressure. The market has always valued Wise as a growth stock, and if its growth does not live up to City expectations, investors could get restless. 

Wise thinks its take rate will continue to decline. As such, management is forecasting a slightly lower revenue growth rate for the second half of the year. Even though the firm is still projecting revenue growth for the year to March 2022 to be in the low-to-mid-20% range, based on the recent price action, it seems that the City does not think this is enough. 

However, I am prepared to look past these near term issues. Wise’s selling point to customers has always been its low fees.

In today’s incredibly competitive e-commerce environment, it needs to maintain this competitive advantage, or it could be left behind. This is probably the biggest challenge the group faces right now. 

I think that is the mentality behind the company’s decision to keep cutting costs. Even though it will mean investors get a smaller share of the pie, consumers will get a better deal.

As a user of the company’s platform, and a potential investor, I think this offers the best of both worlds. By maintaining the competitive advantage, the number of users should grow, leading to revenue growth over time. 

This growth potential is the reason why I would buy the stock for my portfolio today and make use of the market’s short-term outlook.