Global Payments Inc. (GPN): Why Are Analysts Bullish On This Cheap Software Stock?
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We recently compiled a list of the 10 Cheap Software Stocks to Buy According to Analysts. In this article, we are going to take a look at where Global Payments Inc. (NYSE:GPN) stands against the other cheap software stocks.
The software industry is changing at an unparalleled rate, with significant advances in programming languages, structures, frameworks, techniques, and other technologies. More specifically, the industry has benefited greatly from the growing need for digital transformation. Until recently, growth prospects have been attractive due to the rising use of Software-as-a-Service (SaaS), which offers a flexible and cost-effective distribution mechanism for apps. It also reduces deployment time compared to traditional systems. In that regard, the global SaaS industry was valued at around $3 trillion in 2022, marking the end of a decade of strong development, with McKinsey estimating that it might reach $10 trillion by 2030. However, McKinsey contends that the rapid emergence of generative AI (GenAI) has altered the software industry more drastically than the shift to SaaS. A notable example is ChatGPT's introduction in late November 2022, which sparked a surge in investment. By 2023, large software firms had already invested over $15 billion in GenAI solutions, accounting for roughly 2% of the global corporate software industry. In contrast, it took SaaS spending four years to get the same market share.
At the same time, IT executives are turning to technology consolidation to address global economic concerns such as inflation, recession, and supply chain disruptions. According to Canalys' IT Opportunity report, global IT investment would increase by 8.3% to $5.44 trillion in 2025. This builds on the rapid growth in 2024, which is expected to climb 7.7%, the fastest pace since the post-COVID technological boom of 2021. In that same vein, The Business Research Company predicts that the global software products market will rise from $1.8 trillion in 2024 to over $2.0 trillion in 2025, representing an 11.7% compound annual growth rate (CAGR).
While challenges exist on the path to growth, the bigger concern for the software industry at the moment is DeepSeek, a Chinese company that claims to produce artificial intelligence software at a fraction of the expense of large US software corporations. DeepSeek's cheaper price should have forced US companies to reduce subscription costs and investments. However, this has had minimal effect on market sentiment towards American firms. In fact, AI income still accounts for a modest portion of their total revenues, and their supremacy remains largely intact. Furthermore, DeepSeek's danger doesn't seem to be immediate, as major US software companies have spent years improving and growing their corporate products.
For our list of cheap software stocks to buy according to analysts, we used stock screeners to select firms with an average analyst upside potential of at least 20% greater than their current stock price. According to Wall Street experts, these equities are undervalued compared to their actual potential. All of these stocks have PE ratios below 25, as of March 7.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A payment terminal in action with customers apart of the experience.
Forward P/E Ratio: 7.44
Analyst Upside: 28.94%
Global Payments Inc. (NYSE:GPN) is a US-based fintech firm that provides payment technology and software solutions to 4.6 million merchant accounts, 4,000 technology partners, and 1,500 financial institutions in more than 100 sectors worldwide.
On February 18, Citi analysts reduced their price target for Global Payments Inc. (NYSE:GPN) to $135 from $138, while maintaining a Buy rating. The analysts highlighted that the company's status has not altered considerably since the announcement of its third-quarter data in late October, which they consider favorable, underlining the importance of consistency in improving stock performance. With sales of $10.1 billion and a high free cash flow yield of 11%, Global Payments' continuing business shift seems to be taking shape.
Weitz Large Cap Equity Fund stated the following regarding Global Payments Inc. (NYSE:GPN) in its Q3 2024 investor letter:
“We continued to increase the Fund’s positions in Global Payments Inc. (NYSE:GPN) and Idex Corp. during the quarter. Both stocks trade at significant discounts to our business value estimates. The companies have fundamental catalysts that could drive the stocks, but the timetable may have slipped a bit. The challenge is that investors want results now, especially in a bull market. We have specific milestones to track, and we think their achievement can be measured in quarters rather than years. In our view, the potential payoffs are well worth the wait.”
Overall GPN ranks 6th on our list of the cheap software stocks to buy according to analysts. While we acknowledge the potential of GPN as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GPN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
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