3 reasons why Wise is one of the UK’s best growth stocks

Ideally, the best growth stocks Do three things well. They grow, make more money and improve their competitive position.

UK money transfer fintech Wise (LSE:WISE) has been doing all three lately, and there may be more in the future. I think this is a growth stock that investors should have on their radar.

Growth

Growth is arguably the most important thing when it comes to stock growth. And according to his latest trading update, Wise has been doing a pretty good job of that lately.

Between April and September, the number of active customers on its platform increased by 25%. The total volume of payments it processes also increased from £57.4bn to £68.4bn.

More importantly, Wise estimates that it facilitates less than 5% of the total cash moved across borders. Moreover, this market has been growing at 19% per year since 2022.

In other words, the company is in a strong position for growth. It is in an expanding industry and has a lot of room to increase its share of this market.

To earn money

The company is also in a good position in terms of making more money. The last update reported a 54% increase in earnings per share, but things aren’t that simple.

Wise has two sources of income. One of these comes from charging fees to facilitate transfers; this is the core part of the business and operating profit in this division increased by 19%.

The company also makes money by earning interest on cash held in its accounts. This has grown by 49%, but it is something investors should be very careful about.

There is a real risk that this will diminish if interest rates continue to fall. So when considering whether to buy the stock, I wouldn’t trust it to do so going forward.

competitive position

The increase in the number of people using Wise is important for another reason besides growth. It strengthens the company’s competitive position.

Simply put, as the firm grows, it becomes increasingly convenient for people to use the platform for payment transfers. This helps it gain more customers.

Wise isn’t just about convenience; The company also aims to be faster and cheaper than its competitors. But connecting more people to its network improves its product.

Since the company’s market share is still small, the network effect that protects the business still has a way to go. But customer growth of 25% shows that things are moving in the right direction.

Is it a stock to buy?

There is a wise one market value worth around £8bn. The question is whether this is too much to pay for underlying profits of £147m in the first half of the year; I am not sure.

As Warren Buffett says, a buying opportunity should be something that screams. Wise isn’t quite there yet for me, but it’s definitely something I’ll keep an eye on.