WEX (WEX)

Payment solutions provider WEX (NYSE:WEX) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4% year on year to $691.8 million. The company expects the full year’s revenue to be around $2.64 billion, close to analysts’ estimates. Its non-GAAP profit of $4.59 per share was 3.1% above analysts’ consensus estimates.

Company Overview

Originally founded in 1983 as Wright Express to serve the fleet card market, WEX (NYSE:WEX) provides payment processing and business solutions across fleet management, employee benefits, and corporate payments sectors.

Diversified financial services encompass specialized offerings outside traditional categories. These firms benefit from identifying niche market opportunities, developing tailored financial products, and often facing less direct competition. Challenges include scale limitations, regulatory classification uncertainties, and the need to continuously innovate to maintain market differentiation against larger competitors expanding their offerings.

In the Mobility segment, WEX competes with Fleetcor (NYSE:FLT), U.S. Bank Voyager, and international players like Radius Payment Solutions and Edenred. The Benefits segment faces competition from HealthEquity (NASDAQ:HQY), Alegeus Technologies, and Alight Technologies (NYSE:ALIT). In Corporate Payments, WEX competes with specialized fintech firms like Global Payments (NYSE:GPN), Marqeta (NASDAQ:MQ), and Stripe.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, WEX grew its revenue at a decent 10.4% compounded annual growth rate. Its growth was slightly above the average financials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. WEX’s recent performance shows its demand has slowed as its annualized revenue growth of 2.4% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, WEX reported modest year-on-year revenue growth of 4% but beat Wall Street’s estimates by 1.5%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Diversified Financial Services companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

The pre-tax profit margin includes interest because it's central to how financial institutions generate revenue and manage costs. Tax considerations are excluded since they represent government policy rather than operational performance, giving investors a clearer view of business fundamentals.

Over the last four years, WEX’s pre-tax profit margin has fallen by 22.8 percentage points, going from negative 7.9% to 14.9%. However, fixed cost leverage was muted more recently as the company’s pre-tax profit margin was flat on a two-year basis.

WEX’s pre-tax profit margin came in at 16.8% this quarter. This result was 4.4 percentage points worse than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

WEX’s EPS grew at a remarkable 16.7% compounded annual growth rate over the last five years, higher than its 10.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For WEX, its two-year annual EPS growth of 4% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, WEX reported adjusted EPS of $4.59, up from $4.35 in the same quarter last year. This print beat analysts’ estimates by 3.1%. Over the next 12 months, Wall Street expects WEX’s full-year EPS of $15.62 to grow 8.9%.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, WEX has averaged an ROE of 11.1%, respectable for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

WEX currently has $5.03 billion of debt and $1.12 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 5×. We think this is dangerous - for a financials business, anything above 3.5× raises red flags.

It was good to see WEX narrowly top analysts’ revenue expectations this quarter. We were also glad its full-year EPS guidance slightly exceeded Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.8% to $159.90 immediately after reporting.

Updated: December 4, 2025 at 11:27 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in WEX.

WEX isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its above-average ROE suggests its management team has made good investment decisions

WEX’s P/E ratio based on the next 12 months is 8.7x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $176.89 on the company (compared to the current share price of $151.27).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.