Software company Marqeta, Inc. (MQ) in Oakland, Calif., operates a cloud-based programming interface platform that provides card-issuing and transaction processing services. The company also offers solutions across several verticals, including digital banks, financial institutions, and commerce disruptors.

Last Wednesday, MQ’s stock inched up higher in after-hours trading after its net revenue for the previous quarter beat the FactSet consensus of $161.30 million. However, its net loss came in at 11 cents per share, versus analysts’ expectations of a nine cents loss per share. The company anticipates a 46% to 48% growth in its net revenue for the second quarter and a 40% to 41% gross profit margin. But it expects its adjusted EBITDA margin to be in the negative 10%-11% range.

MQ’s stock has declined 49.3% in price year-to-date and 22.4% over the past month to close yesterday’s trading session at $8.71. However, it has gained 24.1% over the past five days.

Here are the factors that could affect MQ’s performance in the near term:

Bleak Bottom Line

For its fiscal first quarter, ended March 31, MQ’s net revenue increased 53.8% year-over-year to $166.10 million. However, its net loss rose 372% from the prior-year period to $60.60 million, while its net loss per share attributable to common stockholders increased 10% from the same period in the prior year to $0.11.

Stretched Valuations

In terms of its forward EV/Sales, MQ is currently trading at 4.43x, which is 59.4% higher than the 2.78x industry average. The stock’s 6.59 forward Price/Sales multiple is 137.1% higher than the 2.78 industry multiple. In terms of its forward Price/Cash Flow, the stock is trading at 348.40x, which is 1,991.7% higher than the 16.66x industry average.

Bleak Profit Margins

MQ’s 44.60% trailing 12-month gross profit margin is 11.48% lower than the 50.38% industry average. Its negative 36.80% trailing 12-month net income margin is substantially lower than the 5.63% industry average.

Its trailing 12-month ROE, ROTC, and ROA of negative 31.83%, 13.42%, and 11.80%, respectively, compare with their respective industry averages of 7.89%, 4.76%, and 3.49%.

POWR Ratings Reflect Bleak Prospects

MQ’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

MQ has a Value grade of F in sync with its stretched valuations. The stock has a D grade for Quality, consistent with its bleak profitability margins.

In the 58-stock Software – Business industry, it is ranked #56. The industry is rated D.

Click here to see the additional POWR Ratings for MQ (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Software – Business industry here.

Click here to check out our Software Industry Report for 2022

Bottom Line

Although MQ’s top-line growth for the first quarter is impressive, its bottom line remained bleak. Moreover, its stretched valuations and negative ROE look concerning. Hence, I think the stock might be best avoided now.

How Does Marqeta, Inc. (MQ) Stack Up Against Its Peers?

While MQ has an overall POWR Rating of F, one might consider looking at its industry peers, VMware, Inc. (VMW) and Sapiens International Corporation N.V. (SPNS), which have an overall A (Strong Buy) rating, and Amdocs Limited (DOX) and Agilysys, Inc. (AGYS), which have an overall B (Buy) rating.

Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in DOX for a 25% gain. Learn more about the RTR service here.

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