3 reasons why the Pushpay (ASX:PPH) share price might be a buy

The Pushpay Holdings Ltd (ASX:PPH) share price could be worth looking at for a number of different reasons, including operating leverage.

| More on:
mineral resources top ascx shares to buy in 2021 represented by piggy bank sitting alongside wooden blocks saying 2021

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are a few really good reasons why the Pushpay Holdings Ltd (ASX: PPH) share price could be worth looking at.

Pushpay is a payments and technology business. It provides electronic donation capabilities for large and medium US churches. Pushpay also provides number of church management and community tools.

Some of those tools include kids and volunteer pre-check, group participation, events, custom content and branding, sermons and audio player, push notifications, app giving and transaction history, giving analytics. It also has a livestreaming option.

Pushpay can claim multiple benefits for the church – increased participation, the ability to engage with new donors, increase recurring giving and removing barriers to generosity.

There are many reasons why the Pushpay share price might be worth owning, including these three:

Strong top line growth

ASX shares that are growing revenue at a double digit pace give themselves a better chance of producing shareholder returns.

Pushpay is seeing a number of positive growth numbers that help revenue. Over FY21, its total customers increased by 2% to 11,099. Average revenue per customer (ARPC) per month grew 12% to US$1,475. Total processing volume in FY21 rose 39% to US$6.9 billion.

All of these different measures helped operating revenue rise by 40% to US$179.1 million.

Over the long-term, Pushpay is aiming to grow its annual revenue to US$1 billion. That would represent a market share of around 50%.

One of the main ways that Pushpay is attracting so much demand for its software is Churchstaq. That's the offering of Pushpay tools, combined with all of the tools offered by Church Community Builder.

Pushpay quoted a client from the Emmanuel Christan Centre who said that the functionality of the Pushpay tool is the best he has ever experienced.

The annual revenue retention rate is more than 100% – customers appear to be loyal and sticky.

Operating leverage

Not only is Pushpay seeing strong growth of revenue, but it's also experiencing profit growth at a much faster pace.

As margins grow, it means that net profit can rise at a faster pace than revenue. Net profit is one of the key factors that investors look at when deciding what the Pushpay share price should be.

During FY21, Pushpay's gross profit margin increased by three percentage points from 65% to 68%. This helped net profit after tax increase by 95% to US$31.2 million and operating cashflow grow by 145% to US$57.6 million.

Pushpay said that it's going to continue to balance expanding its operating margins with opportunities to increase revenue growth.

Investing for the future

Pushpay is growing within its core customer base, but it's also going to invest for growth.

In FY22 it plans to invest US$6 million to US$8 million to establish relationships and increase engagement with key stakeholders in the Catholic segment. Two thirds of that money will be spent on product design and development. The rest will be spent on sales and marketing.

Management expect to see the benefits of this expenditure over the course of the following financial years.

Pushpay said that it's the "first step" in investing to grow outside of its existing core customer base. It has set a goal of winning more than 25% of the Catholic church management system and donor management system market over the next five years.

The ASX share pointed out that the Catholic church is closely associated with many education providers and non-profit organisations, which presents further opportunities within the US and other international jurisdictions.

It continues to look for acquisition opportunities to bolster its growth prospects.

Pushpay share price valuation

According to Commsec, the Pushpay share price is currently valued at 24x FY23's estimated earnings per share (EPS).

Tristan Harrison has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Growth Shares

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

Here are the top five ASX 200 shares in Macquarie's model growth portfolio

These ASX 200 shares are highly rated by analysts at Macquarie.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
Growth Shares

3 ASX shares to buy in 2024 and hold for the next 10 years

Analysts think these top shares are in the buy zone right now.

Read more »

A man leans forward over his phone in his hands with a satisfied smirk on his face although he has just learned something pleasing or received some satisfying news.
Growth Shares

4 ASX growth shares I think will benefit from interest rate cuts in 2024

Not only will home loan holders rejoice, investors of these stocks could also be yelling with joy when the Reserve…

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
Growth Shares

3 of the best ASX growth shares to buy now

Analysts see plenty of upside for these buy-rated shares.

Read more »

A man and woman in an office look at a laptop and discuss investing, budget strategies or other financial concepts
Growth Shares

Here's why analysts love these buy-rated ASX 200 growth shares

There's a reason analysts are feeling bullish about these companies.

Read more »

A woman with strawberry blonde hair has a huge smile on her face and fist pumps the air having seen good news on her phone.
Growth Shares

Big returns could be coming for high-flying Lovisa shares

Morgans doesn't believe it is too late to snap up this hot stock.

Read more »

Smiling young parents with their daughter dream of success.
Growth Shares

Why these ASX 200 growth shares could be top buys now

Analysts are feeling bullish about these growth stocks. Let’s see what they’re saying.

Read more »

Concept image of a man in a suit with his chest on fire.
Growth Shares

Ignore the noise and buy this hot ASX growth stock

A recent pullback may have created a buying opportunity according to Bell Potter.

Read more »