ACI Worldwide ACIW shares have gained 55.8% year to date (YTD), outperforming the Zacks Computer - Software industry’s growth of 7.1%.

ACIW stock has also outperformed the Zacks Computer and Technology Sector and S&P 500 index in the YTD period. The Zacks Computer and Technology sector and the S&P 500 index have returned 13.6% and 14.4%, respectively, YTD.

This outperformance reflects investors’ confidence in ACIW’s electronic payments software business that provides solutions for financial institutions, merchants and billers. Given the outperformance, should you buy or hold ACIW stock, or is it a risky bet? Let's find out.

ACI Worldwide YTD Performance

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Growing Traction in Payment Solutions Aids ACIW

ACIW has been able to constantly grow its top line through higher transaction volumes in the biller segment. On second-quarter 2024 earnings call, ACI Worldwide also reported that more deals are coming in its banking segment.

ACIW also stated that it is capitalizing internationally and especially in the    Asia-Pacific market, where its competitors are discontinuing their product support, creating opportunities for the company.

So far this year, ACI Worldwide has secured some major contracts for streamlining payments of various organizations. It has signed a contract with Nepal Clearing House, RYVYL EU, Kuvasz Solutions, Kiwibank, Arab Financial Services, AFFIN BANK, Mexipay and Red Hat internationally either to modernize its payments solution or improve their instant payment infrastructure.

In the second quarter of 2024, ACIW’s biller segment revenues increased 13% year over year. The company also reported that its bank segment revenues grew 22% year over year.

Near-Term Challenges for ACIW Stock

Intensifying competition in the electronic payment software space could hurt ACI Worldwide’s growth prospects. Inside the United States, ACIW faces stiff competition from a range of players, including Fiserv, Inc., NCR Voyix Corporation VYX, Jack Henry & Associates, Inc. JKHY, Payoneer Global Inc., Nuvei Corporation and Paymentus Holdings, Inc. PAY.

In the merchant payments space, NCR Voyix competes with the ACI Payments Orchestration Platform. In the bill payments segment, ACIW competes with Jack Henry & Associates, Inc., Paymentus and Fiserv. However, there are several smaller players in these markets that give tough competition to ACI Worldwide’s products.

Moreover, impressive share price performance in the YTD period has driven ACIW stock’s valuation to lofty heights. ACI Worldwide’s shares currently trade at a forward 12-month price-to-earnings multiple of 30.62X, significantly higher than the industry average of 19.22X and well above its peers. By comparison, Advanced Micro Devices, Micron and Marvell trade at multiples of 7.99X, 4.27X and 10.08X, respectively.

Final Words

ACI Worldwide’s steady flow of contracts reflects solid top-line growth potential. However, ACIW also faces stiff competition in the electronic payment software space that will keep its business prospects under pressure. The YTD run-up in share price has driven ACI Worldwide's valuation to elevated levels, and a market correction or a period of consolidation could provide a better opportunity to invest in this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Paymentus Holdings, Inc. (PAY) : Free Stock Analysis Report

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