Is the Sezzle (ASX:SZL) share price an obvious buy?

After a heavy fall this year, could Sezzle shares be an obvious buy?

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The Sezzle Inc (ASX: SZL) share price has nearly halved over the last five months. Could the buy now, pay later operator be an obvious buy?

In the last five months, Sezzle shares have declined by 49%. That's despite the business continuing to grow and process more payment volume.

The third quarter of its 2021 financial year showed how quickly the business continues to grow.

Sezzle's third quarter

In the three months to September 2021, its underlying merchant sales (UMS) were US$460.7 million. That was an increase of 101.9% year on year and 12% quarter on quarter.

That growth of UMS helped total income grow by 78.9% to US$28.5 million.

Customer and merchant numbers also continue to grow significantly.

Active merchants increased by 112.5% year on year, or 10.2% quarter on quarter, to 44,400. A couple of highlights relating to merchants was that BigCommerce designated Sezzle as its preferred buy now, pay later partner. Sezzle also launched Sezzle Capital for merchants through a partnership with Wayflyer, a revenue-based financing and growth platform – Sezzle doesn't take on credit risk or additional capital requirements with this.

Active consumers reached 3.2 million at the end of the quarter. That was an increase of 77.9% year on year and 10.7% quarter on quarter.

Growth of these different areas could help the long-term prosperity of the Sezzle share price.

Continuing adoption

Sezzle pointed to various elements relating to consumers that were showing improvement.

It noted that the top 10% of Sezzle users remained highly engaged, transacting 49x on average over the trailing 12 month period to 30 September 2021.

Management said that repeat usage continued to improved, with the consecutive growth streak increasing to 33 months, with a rise to 92.3%.

In-store represented more than 5% of UMS in the quarter, reflecting the long-term omnichannel opportunity, according to the company.

It also said that it "significantly" lowered its provision for uncollectible accounts receivable as it declined over 100 basis points in the third quarter to 2.3% of UMS, down from 3.4% in the second quarter.

The company also reached an agreement with Alliance Data Systems Corporation.

International

Another area that could help the Sezzle share price over time is the company's expansion into other countries beyond the USA.

In Canada, the company reached an important milestone of 3,000 active merchants in just the second quarter of operations, representing a 220.3% year on year increase. UMS there reached a run-rate pace of more than US$100 million annually. It also reached 190,000 active consumers (up 232.2% year on year).

Turning to Europe, Sezzle is still in very early stages, so management called that segment "immaterial" at this stage. However, its connections with merchants in North America could help it grow in Europe. For example, it has signed The Hut Group.

Its Indian operations are also classified as immaterial, though they are growing quickly. Active merchants were up 37% quarter on quarter, active consumers increased 56% quarter on quarter and UMS increased 38% quarter on quarter.

Is the Sezzle share price a buy?

Ord Minnett thinks so. It has a buy rating on the buy now, pay later business with a price target of $9.90. That suggests the broker believes Sezzle's shares could more than double over the next year.

The broker thinks Sezzle looks cheap compared to others like Afterpay Ltd (ASX: APT) and that the discount to peers could improve if Sezzle can keep growing with large merchants like Target.

Motley Fool contributor 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 and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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