Repay Holdings Corporation ( RPAY ) shares are trading lower Tuesday after multiple firms reduced their price targets on the stock.

What To Know: Canaccord Genuity analyst Joseph Vafi noted that Repay has strong free cash flow (FCF) conversion and a rich margin structure. However, the company is facing growth challenges, he added.

The company is seeing headwinds from the runoff of political ad spending after the 2024 election cycle and client losses due to M&A, he explained.

One major customer decided to take payments in-house, which further affected Repay's revenue outlook. Without these setbacks, Vafi expects Repay to achieve mid-single-digit revenue growth this year.

Despite these issues, Vafi highlighted the company’s potential attractiveness as an acquisition target due to its differentiated embedded payments business and its partnerships with independent software vendors (ISVs). He indicated that Repay's business model could be appealing to larger payment players looking to expand their total addressable market. While he did not provide specific details, Vafi said the chances of a transaction occurring during the strategic review process appear to be “pretty good.”

Repay's fourth-quarter results showed mixed performance. Revenue increased by 3% year-over-year, while gross profit rose by 2%. The consumer payments segment declined by 5% in gross profit, while business payments grew by 60%. Vafi pointed out that Repay continues to add new customers through its direct salesforce and ISV partnerships, with 329 credit union customers and 280 software partners at the end of fourth-quarter.

The company is also seeing growth in its accounts payable (AP) and accounts receivable (AR) automation offerings, with its supplier network expanding to over 360,000 from 333,000 in the previous quarter.

Vafi observed that while Repay has invested heavily in its software infrastructure, much of that work is now complete, and he expects capital expenditures as a percentage of revenue to decline to around 10% from the prior 12-13% range. This reduction could improve free cash flow conversion moving forward.

Price Action: Repay corporation shares were down 12.8% at $6.19 at the time of writing, according to Benzinga Pro.

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