Investors Are Selling, But Is This Growth Stock Actually a Bargain?

Remittances don't get much attention from investors, but hundreds of billions of dollars are sent across borders every year from immigrants and temporary workers providing for their families and others in their home countries.

Traditional players in the space include Western Union and MoneyGram, but no company is growing faster in the remittance space than Remitly Global (NASDAQ: RELY), a digital-first fintech company that has grown quickly by expanding its addressable market within remittances and adding a premium, subscription-based tier.

Remitly went public in 2021, and the stock has mostly struggled since then despite delivering consistently strong growth. The stock is down by roughly two-thirds since it listed its shares for $43.

Image source: Getty Images.

Why is Remitly down?

A combination of slowing revenue growth, concerns about stricter immigration policy in the U.S., and minimal profits has weighed on the stock, even though management seems to be executing on its goals.

For example, revenue rose 25% to $419.5 million on a 35% increase in send volume to $19.5 million with a lower take rate reflecting a strategic shift to expand its market. The company is now profitable on a generally accepted accounting principles (GAAP) with net income of $8.8 million in the third quarter, showing its margins are still minimal.

At its Investor Day conference in December, the company gave guidance through 2028, saying it forecast revenue growth in the high teens in 2026, and sees revenue of $2.6 billion-$3 billion in 2028, implying a compound annual growth rate of 20% over the next three years. It also projected an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $575 million-$600 million. The company also said it would aim to meet the rule of 40 standard over the next three years, meaning that revenue growth and EBITDA margin combined would equal at least 40%.

Is Remitly a buy?

Remitly currently has a market cap of just $2.9 billion, meaning the stock trades at just 5 times its EBITDA forecast for 2028.

If the company can hit that target, it seems like the stock has nowhere to go but up. The weakness in the stock seems to partly reflect investor skepticism that it can get there.

Still, Remity has smartly expanded its addressable market by offering its product to businesses and with the Remitly One subscription program, which offers a send now, pay later feature, among other perks.

With strong revenue growth, a low valuation, and new products like Remitly One, the fintech stock looks too cheap to ignore.

Jeremy Bowman has positions in Remitly Global. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.