2023-11-01 16:42:48 ET
Summary
- Cantaloupe, Inc. is a digital payments and software services company that provides technology solutions for small-ticket businesses in the unattended retail market.
- The company is delivering solid revenue growth, is becoming increasingly profitable, and the stock has seen some insider buying of late as well.
- Analysts have reissued Buy ratings on the stock, however its current valuations may be too high given the economic environment and potential for a recession in 2024.
- An updated analysis on Cantaloupe, Inc. follows in the paragraphs below.
Cash is King. Information is his twin .”? Sotero M Lopez II.
Today, we are putting Cantaloupe, Inc. ( CTLP ) i n the spotlight for the first time since our initial article on this small cap name just before the central bank starting to lift the Fed Funds rates in the first quarter of 2022. The stock fell hard after the initial stages of monetary tightening. However, the shares put in a bottom in late 2022 and spiked higher throughout most of 2023 until a recent pull back. The equity saw some new insider buying in late September. An updated analysis follows below.
Company Overview:
The company is headquartered just outside of Philadelphia in Mahern, PA. Cantaloupe, Inc. functions as a digital payments and software services company. The provides technology solutions for the unattended retail market which include small-ticket businesses such as vending machine/micro market companies, car washes, laundromats, arcades, and electric vehicle charging stations.
June 2022 Company Presentation
Cantaloupe provides these small businesses with integrated solutions for payments processing, logistics, and back-office management. The stock currently trades near $6.50 a share and sports an approximate market capitalization of $475 million.
The company earns revenues in three distinct ways via transactions, subscription fees and equipment sales. The company's fiscal year begins July 1st.
Fourth Quarter Results:
The company posted its second quarter numbers on September 6th. The company delivered GAAP earnings of four cents a share, a penny shy of estimates. This translates into GAAP net income of $2.8 million for the quarter, a marked improvement from the $2.1 million net loss for the company in 4Q2022.
Revenues rose 10.6% on year-over-year basis to $64.2 million, largely in line with the consensus. Subscription revenue rose 17% year-over-year to $17.5 while transaction fees increase 18% to $33.5 million. Transaction revenue rose primarily due by higher processing volume, a small acquisition of 32M and higher average transaction amounts. Equipment sales fell 15% to $11.2 million. Notably, 4Q2022 saw large equipment sales volume due to a 4G upgrade cycle. The company ended the year with some 28,000 active customers, a 19% increase from the end of FY2022.
Gross margins grew impressively to 40.1% for the quarter from just 29.5% in 4Q2022 thanks largely to higher overall sales mix due to subscription and transaction revenues. Adjusted EBITDA rose to $9.2 million from just $2 million from the same period a year ago.
Management provided FY2024 revenue guidance of $275 million to $285 million along with net income of $9 million to $15 million. It expects its operational cash flow to be between $28 million to $38 million for the current fiscal year.
Analyst Commentary & Balance Sheet:
Since fourth quarter results were posted, both Northland Securities and Barrington have reissued Buy ratings with identical $10 price targets on the equity. In addition, Berenberg Bank ($9 price target) and Craig-Hallum have assigned new Buy ratings on the shares.
Prior to second quarter numbers, B. Riley Financial assigned a new Outperform rating on Cantaloupe and $10.50 price target in Mid-August as the bank
" believes the current shift towards cashless payments provides tailwinds for the company and that its profitability is on track for rapid acceleration ."
Just over one percent of the outstanding float in the shares are currently held short. The CEO and one company director bought just over $200,000 worth of shares collectively in late September. That has been the only insider activity in the stock so far in 2023.
The company ended the first half of 2023 with just over $50 million of cash on its balance sheet after generating $8.4 million in operating cash flow in the second quarter. The company has just under $15 million in long-term debt.
Verdict:
The company broke even in FY2023 on revenues of just under $244 million. The current analyst firm consensus has Cantaloupe earning a dime a share in FY2024 as sales rise to just over $277 million. They see profits moving up to 24 cents a share in FY2025 on just under 15% revenue growth.
Cantaloupe is delivering solid revenue growth and will be increasingly profitable in the coming years. The problem around recommending the stock at current trading levels comes down to valuations. The stock currently trades for 65 times this fiscal year's projected profits and just under 30 times FY2025 est. EPS. That is simply too rich in an environment where the 10-year treasury yield (US10Y) is near its highest levels since 2007. Small businesses will also be hurt if the country sees a recession in 2024, which seems likely.
June 2022 Company Presentation
Cantaloupe, Inc. stock is considerably cheaper on an operating cash flow basis, especially equating for the net cash on the balance sheet. If the stock falls back in the low $5s, I will probably start to accumulate a position in CTLP then as I like the company's longer-term potential.
Cash in your bank account is as safe as the creditworthiness of your banker. No more, no less .”? Naved Abdali.
For further details see:
Checking Back In On Cantaloupe