Sezzle has crushed the market year to date, but a 50% decline has some investors on edge.
Sezzle (SEZL 0.27%) had a hot start to the year, with shares jumping from $45 in January to more than $180 per share at the start of July. That’s a 300% gain, but a series of setbacks has caused Sezzle to plunge by more than 40% over the past couple of months.
After the company reported second-quarter earnings on Aug. 7, many investors threw in the towel, causing the fintech company’s shares to drop by 34% the next day. As of market close Oct. 8, the stock was down 41% from its pre-report price.
While a correction was necessary, the drop looks overdone. Sezzle is a leader in the buy now, pay later (BNPL) industry, and it’s one of the few profitable BNPL companies on the stock market. Although there are concerns worth watching, Sezzle’s high growth rates and reasonable trailing price-to-earnings ratio look promising.
Sezzle is taking market share from its peers
Although Sezzle shares collapsed after investors digested the Q2 earnings report, the results were pretty good. Investors certainly wanted more, but that report further demonstrated that Sezzle is taking market share from other BNPL players.
Sezzle reported 76% year-over-year revenue growth and projects 60% to 65% year-over-year revenue growth throughout 2025. Both of those numbers are higher than Affirm‘s growth rates. Revenue only increased by 33% year over year in Affirm’s recent quarter.
Affirm is still growing its customer base, with 24% year-over-year growth in Q4 FY25, but Sezzle is the clear winner, with its 13.7% sequential customer growth rate. Sezzle also enjoys much higher profit margins than Affirm. The company’s growth rates and profit margins are also more impressive than competitors like PayPal, Bread Financial, and Block.
Image source: Getty Images.
Sezzle’s guidance on future revenue growth suggests it will continue to gobble up market share from its fintech competitors. And since the fintech company raised its fiscal 2024 guidance three times, I think we might see that kind of good news again.
Sezzle also wins with its valuation
Sezzle doesn’t only win with growth rates. It also trades at a lower valuation than its competitors, presenting a rare opportunity in the fintech industry. Affirm is the most comparable with financial growth rates, but it has a 598 trailing P/E ratio compared to Sezzle’s 29. That’s more than a 20x difference between the two BNPL companies.
PayPal and Bread Financial have lower trailing P/E ratios of 15 and 11, respectively. However, their revenue and net income growth rates aren’t anywhere close to Sezzle’s. While Sezzle investors were disappointed with 76% year-over-year revenue growth, PayPal and Bread Financial investors would be delighted with 10% year-over-year revenue growth.
Block’s growth has also slowed down substantially, including back-to-back year-over-year revenue declines. The financial results, valuations, and growth rates of Sezzle’s peers further demonstrate the stock’s rare position.
Sezzle trades at a lower valuation than most of its peers, while outgrowing them at a fast clip. This context makes the 40% drop seem like a strong overreaction, or at least a response to Sezzle’s 300% surge to start the year. S The stock still looks promising, especially when you compare it to competitors.
The BNPL industry may be a house of cards
The one thing that can take down Sezzle is the BNPL industry as a whole. Right now, things look good. Grand View Research projects the BNPL industry will achieve a 27% compound annual growth rate from now until 2033, and Sezzle stock should generate handsome profits for shareholders if that’s the case.
The BNPL model involves breaking one purchase into multiple installment payments, so it’s not the type of business model that wins over people with good credit. BNPL companies usually attract consumers with bad credit, and as people become more financially strained, it can lead to more defaults.
An April LendingTree survey found that four in 10 BNPL users (40%) made at least one late payment. That’s up from 33% the previous year.
With some people using Sezzle and other BNPL options to pay for everyday purchases like takeout food, it’s easy to wonder when the payments will become too much for a larger percentage of consumers. The problem may compound in future quarters, but until then, the BNPL industry will continue to boom. Sezzle stock should be one of the top beneficiaries if the BNPL model remains intact.
Marc Gubertis has no positions in the stocks mentioned in this article. The Motley Fool has positions in and recommends Block, PayPal, and Sezzle. The Motley Fool recommends Bread Financial and recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2025 $75 calls on PayPal. The Motley Fool has a disclosure policy.
