Is the Pushpay share price too high to buy?

The Pushpay Holdings Ltd (ASX: PPH) share price has rocketed up by 224.2% since its year to date low point on 16 March. The question for growth investors is, of course, can this company that provides donor management systems continue surging in value? If so, by how much?

The target market

Based in New Zealand and operating predominantly in the United States, Pushpay sells donor management tools to faith-based organisations, nonprofits, and education providers. So the entire company is set up to help facilitate donations and therefore assist organisations to fund charitable works. This is what initially sparked my interest in the Pushpay share price. 

The company operates through two primary verticals: a donor management system, including applications, and the Church Community Builder platform, the latter being a leader in church management systems. The Church Community Builder provides insights into congregations and helps drive engagement. It also provides scheduling functions for voluntary work.

Pushpay currently has over 10,000 customers and, during the height of COVID-19 lockdowns, its revenues actually increased. 

Pushpay’s financial position

At its annual meeting on 18 June, Pushpay announced it had achieved an amazing US$5 billion in total processing volumes for the year ended 31 March 2020. In addition, the company increased operating revenue by 33% to US$127.5 million while increasing its gross margin from 60% to 65%. That is an impressive margin. Moreover, the company has increased its sales by an average 45% per year over 4 years.

Over the past two years, Pushpay has delivered a positive return on equity (ROE). That is, the net income divided by the shareholders equity, or the total assets minus debt. The average ROE for the past two years has been 38.2%.

Of the company’s total revenues ~$91.9 million came from processing, while ~$35 million came from subscriptions. Both of these revenue streams contain large recurring revenue content. 

The Pushpay share price

As a growth company, the Pushpay share price is currently trading at a price to earnings ratio of >90. The share price has risen ~42% per year, on average, for 4 years. Furthermore, the company only generated its first profit in FY19. 

Foolish takeaway

Personally, I think the Pushpay share price still has a long runway ahead of it. The company has managed to eke out a profit over a relatively short period of time and has built a company based largely on recurring revenue streams. 

On its current growth rate, I expect Pushpay to process more than $5 billion in total transactions in FY21. While it is presently focused on the church sector in the US, which is a very large sector, I feel there is still significant growth opportunities for the company to realise through other donation-driven organisations. 

I believe it’s very possible the Pushpay share price could double two or three more times from its current value over the next 3 – 5 years. 

More reading

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• Australian businesses are running out of cash

Daryl Mather 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. 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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