4 Payment Stocks To Gain From Strong Consumer Confidence
Zacks Investment Research | May 20, 2019 09:11PM ET
The payments industry, which is to a large extent driven by consumer spending is set for strong growth based on recent economic readings, which include a robust job outlook, rising wages and steady economic expansion.
Led by these, U.S. household sentiment hit its highest level in 15 years in early May. Although U.S.-China trade talks (one of the factors that can have far reaching adverse economic effects) are in limbo, the domestic economic strength is enough to keep consumers confident about their personal finances.
High consumer confidence will lead to increased spending. Since a large chunk of payments on spending is done via modes other than cash, such as debit and credit cards, mobile as well online, companies engaged across different verticals in the payments processing industry will be direct beneficiaries.
Recent Readings
Per the University of Michigan, the consumer sentiment index increased to 102.4 in May from 97.2 in April. The same came in ahead of analysts’ expectations of 97.5 and registered the highest level in a decade and half.
Also, the consumer confidence index reading, per the Conference Board, went up to 129.2 in April from 124.2 in March. Consumer confidence index, a key economic indicator which measures attitudes on economic prospects, exceeded analysts’ expectations of 126.9 and rebounded in April after a drop in March.
The consumer sentiment index, historically, is a mirror of consumer spending for the next three to six months and growing consumer confidence will prompt them to spend more. An increase in consumer spending is directly proportional to revenue growth for the companies in the payments space.
Payments Industry Set to Thrive
The payments space, which mostly consists of players offering various services in digital, electronic and card payments, has seen increased business volumes owing to fast adoption of these easy, convenient, flexible payment options by consumers.
The shift from cash in the payments industry is well underway and would magnify going forward, with newer technologies being adopted by the players.
Per Statista, in 2018, online sales of physical goods amounted to $504.6 billion and are projected to surpass $735 billion in 2023. Apparel and accessories retail e-commerce in the United States is projected to generate more than $138.7 billion in revenues by 2022.
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