Sezzle Inc. (SEZL) officially takes the prize as THE BEST TOP TIER INFLECTION of this earnings season.
Just know this:
SEZL IS NOT A STOCK FOR THE FAINT OF HEART! SEZL IS SUPER THIN: ONLY 6M SHARES OUTSTANDING and only 4M in the float, with 2M locked up via the Chairman/CEO's stake. If you are going to get involved, we recommend you buy any flushes during the next few days and also use limit orders.
SEZL is the biggest Buy Now, Pay Later Player in Canada, with a specific focus on North America:
Sezzle had a stellar 2023, which catalyzed a huge move in its stock since uplisting to the Nasdaq last fall.
Note the consecutive quarters of top line growth and triple digit earnings power:
While 2023 was an excellent year, 2024 stands to be even better with stellar Top Line Growth and the company poised to become a Rule of 50/60 Company. Yes, you heard that right.
Check out the Q1 Numbers. Unreal.
Sezzle did more in GAAP Net Income in Q1 - $8M - than it did IN ALL OF 2023($7.3M).
Revenue Growth re-accelerated from Q4's mid-20s Rate of Growth to almost 36% growth this quarter, with EPS accelerating to 364% growth:
Importantly, SEZL raised its rate of Sales Growth from 20% on the year to 25% Sales Growth. We think these numbers will prove to be conservative.
Even more impressive, EPS for the year was guided up 50% from $20M, or ~$3.25ish, to $5. Given SEZL is already run-rating north of $5 and Q4 will be an OUTSIZED QUARTER (last year, Q4 represented 40% of its EPS on the year) we see $6 in EPS as very likely for this year.
Incredible leverage is manifesting here. What's driving it? Well, their new subscriber offering is playing a big part. Launched last year, in 5 quarters SEZL has quickly scaled to 371k subscribers. The number of new subscribers added in Q1 was huge, almost 65k. So, incredible traction:
Subscribers are creating a positive flywheel effect, ordering more products from Sezzle’s partners and the merchants on its platform. It's easy to see the Engagement Metrics in this slide:
With consumers loving the offering - the subscription offering has a 66 NPS score - we expect the flywheel to continue gathering steam in the coming quarters. We believe the powerful Inflection Point manifesting here will extend for the next 2-4 quarters. We can easily make the case SEZL will also grow its Top Line 20% in 2025 and post EPS of $7-$8 (untaxed), but that is a conversation for later this year.
For now, we plan to buy into the stock Thursday morning via VWAP scaled limits. We also want to have bids stacked to add to our position on any and all flushes. Similar to POWL and SMCI after their blow out quarters, even with SEZL up 45% to $65+ pre-market, considering it is poised to make $5 (we think $6 in EPS when everything is said and done) - SEZL is actually cheaper at these post-earnings levels than it was before this barnburner of a report came out.
As for what we are playing for, it's simple: We see $100-$125 the next 3-6 months.
STOP LOSS: As such, we are implementing a Time Stop here. We want to stay involved for the expected move to $100. If we advance to these levels, we will do what we always do, take off risk, in increments on the way up. If we get to $100, we will then use a stop below the 50-day SMA as our long-term stop.
At $100/shr, SEZL would have a $600M Valuation, or a 3x Price-to-Sales Ratio. At $100, it would trade for ~10x likely $60M in 2024 EBITDA. This is very reasonable for this type of dynamic, highly-profitable Top Line and eye-opening Earnings Growth Rates.
On a comp basis, AFRM is bleeding red ink and trades for 32x its expected 2024 EBITDA metrics. AFRM also trades for 4x Sales. Just saying, sometimes a chase is not a chase.
With the best Top Tier Inflections, buying into a name when a stock “gets cheaper” after a massive guide up for the entire year, is a proven way to stack the odds in your favor and attain outsized alpha.
Without a doubt, Liquidity Risk is a factor with SEZL. We plan to keep our allocations small. The stock has also moved substantially since uplisting to the Nasdaq. This has created strong overhead resistance all the way to $100.
We attach 80% odds our Sezzle Thesis plays out. This is why we are getting it in front of you. Even at $70, this would only be a 12x P/E on the $6 in EPS we expect this year. Yes, these are Untaxed Earnings, but even a 20x multiple on $4.75 in fully taxed earnings makes an entry of $70 still palatable.
From a $70 entry, a move to $100 would represent a ~43% gain.
Longer-term, with Management stating on the conference call they are shooting for 60% Gross Margins vs the current GMs of 55%, and also 20% Net Income Margins vs the 17% reported this Q, we can make the case for SEZL to move well north of $100. In our experience, Rule of 50/60 companies always re-rate a lot higher than one thinks possible. Something to to be mindful of for those who choose not to buy in because they view the stock up too much on Thursday.
Remember, SMCI, POWL, ROOT all looked overextended when they went up 40% on the first days of their dynamic breakouts.
A few days/weeks later those prices all looked cheap.
We see the same thing playing out in SEZL in the coming weeks.
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Disclosure: We are long SEZL stock. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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