Is Sezzle Stock a Bargain After Crashing by 40%?

Sezzle (SEZL) shares have recently corrected over 40% from their peak, despite reporting robust Q2 earnings with 76% year-over-year revenue growth and projecting 60-65% growth through 2025. The company is outperforming and gaining market share from competitors like Affirm, boasting superior growth rates, better profit margins, and a significantly lower trailing P/E of 29 compared to Affirm's 598. While Sezzle's individual performance and valuation appear strong, the broader Buy Now, Pay Later (BNPL) industry faces increasing systemic risk, evidenced by 40% of users reporting at least one late payment, which could impact the company's long-term prospects.

Analysis

Sezzle (SEZL) experienced a significant share price correction, falling over 40% from its July peak, including a 34% drop post-Q2 earnings on August 7th, despite reporting robust financial results. This decline followed an initial 300% surge earlier in the year, suggesting the recent pullback may be an overreaction to previously high expectations. As of October 8th, the stock remained down 41% from its pre-report price.

The company reported 76% year-over-year revenue growth in Q2 and projects 60-65% growth through 2025, significantly outpacing competitors like Affirm (AFRM), which saw 33% YoY revenue growth. Sezzle demonstrates superior fundamentals with higher profit margins and a 13.7% sequential customer growth rate, indicating it is actively gaining market share within the Buy Now, Pay Later (BNPL) sector. Furthermore, Sezzle's trailing P/E of 29 is substantially lower than Affirm's 598, presenting a rare valuation opportunity compared to its high-growth peers.

Despite strong individual performance, the broader BNPL industry faces increasing systemic risk. A LendingTree survey revealed 40% of BNPL users made at least one late payment, up from 33% the prior year, highlighting potential credit quality deterioration. While the industry is projected to grow at a 27% CAGR until 2033, the reliance on consumers with potentially weaker credit profiles introduces a significant risk of increased defaults, which could impact Sezzle's long-term profitability.

Key Decisions for Investors

• Consider the recent 40% share price correction as a potential entry point, given Sezzle's strong growth rates (76% YoY revenue) and attractive valuation (P/E of 29) relative to competitors.
• Monitor the broader BNPL industry's credit quality trends, specifically the rising late payment rates (40% of users), as this systemic risk could impact Sezzle's future profitability despite its current strong performance.
• Evaluate Sezzle's ability to sustain market share gains and profitability in a potentially deteriorating credit environment, especially given its focus on consumers with less robust credit profiles.