Why Shift4 Payments Stock Crashed Today

Shift4 Payments (FOUR) saw its stock price drop 13% in the early trading hours on Thursday, even though the company reported better-than-expected earnings. Analysts had predicted the company to earn $1.37 per share, but Shift4 managed to earn $1.49 per share after adjusting for one-time items. While the company's gross revenue, including network fees, fell short of expectations at $648 million, it did increase by 12% compared to the previous period.

More notably, revenue based on payments, excluding network fees, which Shift4 considers its "north star," grew by 18%. The company's GAAP earnings per share more than doubled to $0.37, representing robust growth. Free cash flow, which is the cash generated from operations after accounting for capital spending and capitalized software costs, rose by 39% year-over-year to $186 million.

Investors, however, seem to be focusing more on the company's future earnings guidance rather than its past performance. Management expects 2026 to bring about $2.45 billion in gross revenue less network fees, a 24% increase compared to the previous year, and non-GAAP profits of about $5.10, which is lower than previously anticipated.

Shift4's adjusted free cash flow projection for the year is around $470 million. Despite these projections, the stock, valued at $3.2 billion, appears to be trading at a relatively low price-to-free cash flow ratio of less than 7x, especially considering the company's double-digit revenue growth. Based on this analysis, the author believes Shift4 is a growth stock and recommends buying the stock.