- Payment Data Systems ended 2017 on a strong note
- Q4 transaction processing volumes impress
- Stock remains undervalued offering a great buying opportunity
The mobile payment processing industry has seen stellar growth in recent years. According to CapGemini and BNP Paribas’ World Payments Report for 2017, mobile payments or M-payments is one of the fastest growing segments within the payments processing industry, the other being E-Payments segment. The World Payments Report for 2017 notes that the M-Payments segment is expected to grow at a CAGR of 21.8% until 2020.
Given the phenomenal growth in the mobile payments industry over the last few years. The industry has garnered attention from investors. The robust growth has also been noticed by conventional payment processing firms and not surprisingly they have made some major acquisitions in this area. Strong forecasted growth and robust M&A activity though has led to valuations jumping significantly in the mobile payments space. However, there are still some undervalued gems and one of them is Payment Data Systems (PYDS).
An Undervalued Gem Within the Mobile Payments Processing Industry
Payment Data Systems is based out of San Antonio, Texas. The company provides a wide range of payment solutions to merchants, billers, banks, service bureaus and card issuers. It also offers merchant account services for the processing of card-based transactions through VISA, MasterCard, American Express, Discover and the JCB networks. In addition, PYDS also creates, manages and processes prepaid card programs for corporate clients.
PYDS has achieved robust growth organically. However, the company has also been focusing on acquisitions. Last year, it completed the acquisition of Singular Payments LLC, which has provided it with 1,200 new merchant account customers. In terms revenue, it represents an additional $10 million.
Going forward, the company expects to continue to make acquisitions that are accretive. In fact, this is an important part of the company’s growth strategy. The company is essentially focusing on two areas when it comes to acquisitions; credit card processing portfolios and companies that have complementary products and services. While with the first type of acquisitions, PYDS seeks to achieve immediate cash flows, the second type will boost its product offerings.
Earlier this month, Payment Data Systems reported its fourth-quarter transaction processing results, wrapping up what was an eventful year for the company with the acquisition of Singular. In fact, the company ended the year with a bang, with credit card processing volume in the fourth quarter rising substantially compared to the same period last year. Q4 credit card processing volumes ended up being the highest in the company’s history.
In dollar terms, credit card processed rose a whopping 274% on a year-over-year basis. Credit card transactions processed during the fourth quarter of 2017 showed a growth of 199% on a year-over-year basis. Even on a sequential basis, PYDS registered strong growth.
Overall in 2017, credit card dollars processed rose 78%, which is highest annual growth rate in the company’s history. Credit card transactions processed rose 34% compared to the previous year, which is also an all-time record. Total dollars processed by PYDS in 2017 exceeded $2.8 billion, which marks the third highest level in the history of PYDS.
Commenting on a phenomenal year and quarter, Louis Hoch, President and CEO at Payment Data Systems, said that the dramatic growth will lead to the company posting record revenues in the fourth quarter and the full year 2017. More important, Hoch expects 2018 to be another robust year with continued growth. Q4 revenue is expected to exceed $5.5 million based on the record transaction processing results.
Despite registering phenomenal growth, PYDS continues to trade at a significant discount to the industry group. With the acquisition of Singular, the company’s revenue is expected to exceed $20 million this year. Considering that the current market cap of $25 million translates to a price-to-sales ratio of just 1.25X. This multiple does not reflect the phenomenal growth currently being seen in the mobile payments industry. The discount though offers an excellent opportunity to buy PYDS.
Given that 2018 is expected to be another record year, PYDS is reaching an inflection point. With sufficient cash flow from operations, there is also no dilution risk, which is a major risk with any small cap stock. Overall, Payment Data Systems offers a very favorable risk/reward profile. The company has tailwind from phenomenal growth in the mobile payments industry. It also stands to benefit from the Singular acquisition in 2018. In addition, PYDS expects to make more accretive acquisitions going forward, which will continue to drive growth.
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