Cloud-based open application programming interface platform operator Marqeta, Inc.’s (MQ) offerings include on-demand services and buy now pay later. The Oakland, Calif.-based company had a stellar stock market debut on June 9, 2021, with its shares surging nearly 13%. It expanded its partnership with Klarna and the First National Bank of Omaha in December 2021. Also, MQ and Mastercard Incorporated (MA) announced a collaboration in November 2021 to power and launch a digital card product to offer faster and more convenient ways for marketplace sellers to get paid and do business.

However, the stock has declined 11.1% in price over the past month and 20.5% over the past three months to close yesterday’s trading session at $15.78. It is currently trading 58.4% below its 52-week high of $37.90, which it hit on October 27, 2021. 

The company reported losses in the last reported quarter. Also, high-interest rates could adversely impact its growth prospects because higher interest rates lower the value of future cash flows. So, MQ’s near-term prospects look bleak.

Here is what could shape MQ’s performance in the near term:

Top Line Growth Does Not Translate into Bottom Line Improvement

MQ’s net revenue increased 56% year-over-year to $131.51 million for the third quarter, ended Sept. 30, 2021. The company’s total processing volume (TPV) increased 60% year-over-year to $27.57 billion. However, its net loss came in at $45.73 million, up 272% year-over-year, while its net loss margin declined 20pps to 35%. Its loss per share was $0.08 compared to $0.10 in the prior-year period. Also, its adjusted EBITDA was  negative $4.94 million compared to $686,000 in the year-ago period.

Low Profitability

In terms of trailing-12-month gross profit margin, MQ’s 42.75% is 13.5% lower than the 49.42% industry average. And the stock’s trailing-12-month EBITDA margin and net income margin are negative compared to the 14.42% and 6.40% respective industry averages. Also, its negative trailing-12-month ROTC and ROTA compare with the 5.09% and 3.67% respective industry averages.

Stretched Valuation

In terms of forward EV/S, MQ’s 12.60x is 210.7% higher than the 4.06x industry average. Moreover, its 15.91x  and 294.20x respective forward P/S and P/CF are higher than the 3.94x and 23.14x industry averages.

POWR Ratings Reflect Bleak Outlook

MQ has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. MQ has a D grade for Stability, consistent with its 1.78 beta.

The stock has a D grade for Sentiment and an F grade for Growth. This is in sync with analysts’ expectations that its EPS will remain negative in fiscal 2021 and 2022.

MQ is ranked #61  of 62 stocks in the Software – Business industry. Beyond what I have stated above, we have also given the stock grades for Value, Momentum, and Quality. Get all the MQ ratings here.

Bottom Line

MQ is an emerging player in the fintech space. However, it is currently trading below its 50-day and 200-day moving averages of $20.77 and $24.78, respectively, indicating a downtrend. Moreover, it looks overvalued at the current price level. So, we think it could be wise to avoid the stock now.

How Does Marqeta (MQ) Stack Up Against its Peers?

While MQ has an overall POWR Rating of F, one could check out these A-rated (Strong Buy) stocks within the Software - Business industry: F5, Inc. (FFIV), Rimini Street, Inc. (RMNI), and SS&C Technologies Holdings, Inc. (SSNC).

Click here to check out our Software Industry Report

MQ shares fell $0.01 (-0.06%) in premarket trading Wednesday. Year-to-date, MQ has declined -8.10%, versus a -1.10% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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