Here’s why the Pushpay (ASX:PPH) share price could be significantly undervalued

Pushpay shares could be an undervalued opportunity.

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Key Points

  • The Pushpay share price has been falling in recent months
  • Growth of revenue, donation processing volume and profit margins could mean it’s an attractive opportunity
  • Ord Minnett’s price target suggests a significant recovery this year

The Pushpay Holdings Ltd (ASX: PPH) share price could be a significantly undervalued opportunity for investors right now.

Since 9 November 2021, the Pushpay share price has fallen by around 34%.

After this significant decline, there are a few factors that could make the donation ASX tech share a long-term opportunity.

Here are a few things to take a look at:

Processing volume and revenue continue to grow

Unlike some ASX retail shares that are struggling to achieve growth in FY22 after a strong FY21, the latest update from Pushpay for the six months ended 30 September 2021 showed growth.

Total processing volume increased by another 9% to US$3.5 billion. While it saw a softer start to the first half of FY22, total processing volume in the second quarter was stronger than the first quarter and the level of digital penetration within the customer base remained consistent.

Pushpay is expecting continued growth of total processing volume driven by continued growth in the number of donor management system products utilised by customers, further development of its product set resulting in higher adoption and usage, and increased adoption of digital giving in its customer base.

FY22 half-year operating revenue increased 9% to US$93.5 million. It’s expecting continued revenue growth as the business executes on its strategy, achieves increased efficiencies and gains further market share in the US faith sector.

Despite the COVID-19 impacts, it has maintained an average annual revenue retention rate of over 110% over the last five comparable periods ending 30 September. This means existing clients are generating more and more revenue for Pushpay.

Growth of the business could be an important driver of the Pushpay share price.

Growing profit margins

Pushpay is experiencing ongoing strengthening of its operating leverage. The business deliberately chose software and tools that would allow it to become increasingly profitable as the company increased in size.

In the first half of FY22, the ASX tech share saw its gross profit margin increase from 68% to 69%.

The company also has a profit measure called the underlying earnings before interest, tax, depreciation, amortisation, foreign currency and impairments (EBITDAFI).

The EBITDAFI margin as a percentage of operating revenue rose from 31% to 32%.

Growth plans

Not only is Pushpay looking to grow with its current client base, but it also has a Catholic initiative to grow in another segment of the faith sector.

In the long-term, its target is to acquire a market share of more than 25% in the Catholic segment by the number of parishes. Growth in the number of clients could help the Pushpay share price over time. 

It was noted that this is just the first step in investing to grow its customer base outside of its existing core customer base.

Pushpay also noted 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.

Benefits from the Catholic segment are expected to be realised incrementally over the course of the following financial years.

Pushpay valuation and share price target

Whilst the broker Ord Minnett doesn’t currently rate Pushpay as a buy, it has a price target of $1.90, which suggests a potential upside of around 60% over the next several months. It thought the Resi Media acquisition was a decent idea with the ability for each business to sell to the other’s customers.

The Pushpay share price is valued at 20x FY23’s estimated earnings, according to Ord Minnett.

Should you invest $1,000 in Pushpay right now?

Before you consider Pushpay, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Pushpay wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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 and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns and 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.

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