Worsening COVID-19 conditions both at home and internationally have contributed to the EML Payments Ltd (ASX: EML) share price falling nearly 9% since the start of the week.
In the company’s defence, EML shares had a great run the week before, adding roughly the same amount that’s been lost so far this week.
EML share price chart
About EML Payments
EML is a financial technology company that provides solutions for payouts, gifts, incentives, rewards and supplier payments.
The majority of EML’s profit can be attributed to its shopping mall gift card segment where gift cards are sold throughout 1,200 malls across Europe and North America.
Back in April this year, mall gift card volumes fell by more than 90% due to lockdowns and social distancing measures, resulting in the sell-off of EML’s shares.
Recent EML share price movements
The reason behind the downtrend this week is the same as the beginning of the year.
EML has quite a bit of exposure to the US and Europe, which is unfortunately where COVID-19 is getting a fair bit worse at the moment. With more restrictions, it seems very likely to me that there will be another drop in mall gift card volumes, similar to what we saw at the beginning of the year.
While it might be logical to think that EML could be a beneficiary of Christmas shoppers buying some last-minute gift cards, its primary market is, unfortunately, the worst affected area, so this will likely offset any potential last-minute sales.
Are EML shares a buy today?
I’m not sure about today, but EML is definitely one ASX share I’m keeping my eyes on.
If the situation overseas further deteriorates, I’d expect the EML share price to continue to pull back further from current levels.
While of course I hope that the situation does improve, I think a further pullback could create a fairly attractive buying opportunity for EML shares.
We know from earlier in the year that social distancing and lockdowns proved to be an effective method for containing the virus. The bull case here is that the vaccine rollouts prove to be effective and that gift card volumes make a quick recovery similar to the beginning of this year.
The bear case would be that the new strain of COVID-19 is in fact much more transmissible and that perhaps a recovery will be more drawn out.
Whatever the case, I’ll be sitting on the sidelines in the hope of picking up some EML shares at a more attractive price.
