Why Sezzle Stock Soared a Sizzling 107% in May

Shares of Sezzle (NASDAQ: SEZL) were sizzling in May. They skyrocketed an eye-popping 106.7% for the month, according to data provided by S&P Global Market Intelligence. The primary driver was the digital payment platform's strong first-quarter results.

Sizzling growth

Sezzle reported strong financial results across the board in May. The buy now, pay later (BNPL) company's gross merchandise volume (GMV) jumped 64.1% to $808.7 million. That helped fuel a 123.3% increase in revenue, which reached a new quarterly high of $104.9 million. That represented 13% of its GMV, up from 11.5% in the fourth quarter. The company benefited from higher user engagement and its WebBank partnership.

Image source: Getty Images.

Meanwhile, the company's transaction costs declined from 4.3% to 3.8% of GMV. Driving the improvement were better-than-expected credit performance, effective payment processing strategies, and reduced interest costs from the improved terms of its new credit facility.

The combination of surging revenue and improving margins enabled the company to more than quadruple its net income to $36.2 million, or 34.5% of its revenue. The continued growth in profitability enabled Sezzle to produce $58.8 million in cash flow from operations, up from $38.6 million in the fourth quarter. That boosted the company's cash position to $120.9 million against $70.8 million of outstanding principal on its $150 million credit facility.

The company's strong showing gave it the confidence to raise its 2025 guidance. It now sees revenue growing 60% to 65% this year, up from its prior view of 25% to 30%. It also raised its net income outlook to $120 million for the year.

Sezzle also continues to launch innovative products to enhance its ability to serve consumers and merchants. It's beta testing its Pay-in-5 offering to provide borrowers greater flexibility at checkout. It also launched several enhanced shopping tools and expanded its merchant network.

Does Sezzle still have room to run after May's epic rally?

Shares of Sezzle have been scorching hot over the past year, rocketing over 800%. That has driven up its valuation. The fintech stock now trades at nearly 15 times sales and over 40 times its forward P/E ratio. That's definitely a premium valuation. The S&P 500 currently trades at 22.5 times forward earnings, while the tech-heavy Nasdaq-100 index fetches more than 28 times its forward earnings.

However, Sezzle is growing much faster than the average company. That could continue for quite a while, given the company's massive total addressable market opportunity. Sezzle currently controls less than 1% of North America's total BNPL market ($257 billion), which is only 2% of North America's total commerce transaction value. Because of that, it's a compelling BNPL stock if you want to capitalize on this massive growth opportunity. While the stock might cool down after its scorching rally, it could have a lot more room to run in the long term as Sezzle continues expanding.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Sezzle. The Motley Fool has a disclosure policy.