Waton Financial soars 400% on Nasdaq debut: is WTF a buy, sell, or hold?

Waton Financial Limited is in focus today after shares of the financial services company rallied a whopping 400% on their Nasdaq debut.

WTF plans on using $17.5 million it raised in the initial public offering (IPO) to improve its trading platform and strengthen the asset management segment.

The company’s offering sold 4.38 million shares in total to fetch a valuation of about $190 million.

Waton Financial stock is now priced at about $20, sharply above the IPO price of only $4.0.

Is Waton Financial a meme stock?

Waton Financial is a high-risk investment at current levels since much of its debut rally was likely driven by retail investors, which effectively makes it similar to a “meme stock”.

Therefore, it’s believable that WTF shares could see a huge correction following the initial surge, much like what usually happens with the meme stocks.

Additionally, Waton Financial stock is going for a price-to-sales multiple of about 90 at the time of writing, which is materially expensive compared to the likes of Charles Schwab and Robinhood at less than 15 times each.

This underscores the disconnect between the company’s financials and its valuation – and it’s not like WTF pays a dividend to incentivize investing in it despite gross overvaluation either.

WTF’s profitability is not too inspiring

Caution is advised in buying Waton Financial stock at current levels also because it operates in the immensely competitive financial technology landscape.

While the sector evidently has potential for meaningful growth, the company’s ability to scale and compete globally remains uncertain, especially when it’s up against renowned names like Charles Schwab, Robinhood, and Interactive Brokers.

Plus, WTF’s profitability picture isn’t too inspiring either. In 2024, Waton grew its revenue by an exciting 73% on a year-over-year basis.

Still, its net profit came in down 19% last year, which further substantiates that investing in Waton Financial is coupled with significant risk as well.

Inflation and interest rates matter to Waton

Last week, the monthly core personal consumption expenditure (PCE) price reading, which is the Fed’s preferred inflation gauge, came in up 0.4% for the month and 2.8% for the year.

Economists, in comparison, had called for a 0.3% and 2.7% increase, respectively.

Stickier inflation could make it more challenging for the Federal Reserve to consider lowering its key interest rate any further in 2025, which may serve as another headwind for WTF shares this year.

Rising borrowing costs might reduce trading activity, potentially affecting its brokerage services.

Moreover, higher rates could increase the cost of margin financing, possibly deterring some clients as well.  

Put together, these macro factors also indicate that investing in Waton Financial stock, particularly when it’s trading at such a high valuation, could prove disastrous for investors in 2025.

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