I follow a few investing groups on Facebook and was recently asked on one why I owned shares in fast-growing payments company Pushpay Holdings Ltd (ASX: PPH).
It was a great question. The Pushpay share price has been rocketing this year, leaving some investors scratching their heads. Everyone invests for different reasons and for me Pushpay has the makings of a great long-term growth story.
These are my 3 reasons why I think Pushpay is a winner:
1. Pushpay is a ‘top dog’ in an important, emerging industry
Pushpay’s software allows church attendees to make donations through mobile payments. The company was one of the first in the contactless payments space and in transforming the way people give money. Growth exploded and there were signs early on that Pushpay was becoming a dominant player in the niche.
Becoming a ‘top dog’ has proven invaluable in 2020. The on-set of COVID-19 has made in-person church gatherings difficult. It has forced churches to find alternative ways to keep congregations connected, informed and the church funded. Pushpay’s perfect positioning helps to meet that need.
2. Pushpay has a strong switching cost moat
I want to own companies with strong economic moats and Pushpay, to me, is an example of a company with high switching costs.
It becomes a time-consuming and disruptive process to change to a competing product once customers and the congregation are set up with the software and app. I think this sustainable advantage will help Pushpay retain customers and produce high rates of return over a long period.
3. The business has a history of superb execution
One of my initial arguments for owning Pushpay shares was that it was led by Co-founder and CEO, Chris Heaslip. A visionary leader, Heaslip had a history of delivering on the aggressive goals set for the company. Imagine my nervousness when both Chris Heaslip and fellow co-founder, Eliot Crowther exited the business in short order, selling down significant proportions of their shareholdings!
Yet, even in the face of such massive management upheavals, the business has continued to thrive. To me, this is evidence of an extremely robust business model.
Peter Lynch has a quote that says “Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it.” Pushpay is certainly not being run by idiots, but having a highly effective business model means the company has escaped the ‘key person risk’ which can be common to start-ups.
My thesis for owning Pushpay shares centred around it being an early mover in an important, emerging industry with a strong economic moat. But the business model has proven to be incredibly robust and sturdy enough to endure a storm of management changes. In my view, these are markers of a great business and the type of companies I want to own in my portfolio.
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Regan Pearson owns shares of PUSHPAY FPO NZX. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia has recommended PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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