2023-03-25 05:54:19 ET
Summary
- CPI Card Group recently announced solid Q4 FY22 and FY22 results with a significant sales and net income increase.
- The company is looking fundamentally and technically strong.
- It is undervalued and has a lot of growth potential.
- I assign a buy rating on PMTS stock.
CPI Card Group ( PMTS ) designs and produces financial payment cards. They operate in prepaid debit, debit, and credit segments. In the debit and credit segment, they produce financial payment cards and offer integrated card services. In the prepaid debit segment, they provide integrated card services to prepaid debit card providers. They recently announced their FY22 and Q4 FY22 results. In this report, I will be analyzing its financial results and give my views on its growth potential. I believe they are undervalued and can provide significant returns to their shareholders. Hence, I assign a buy rating on PMTS.
Financial Analysis
PMTS recently announced its Q4 FY22 and FY22 results . The net sales for FY22 were $475.7 million, a rise of 26.8% compared to FY21. I believe the main reason behind the rise was strong revenue growth in the prepaid debit and debit and credit segment. The revenue from the debit and credit segment grew by 32% in FY22 compared to FY21. I think the main factors behind the revenue increase in the debit and credit segment were the high demand for its contactless cards, including eco-focused cards. The revenue from the prepaid debit segment grew by 9% in FY22 compared to FY21. I believe the growth was driven by an increase in new customer addition. The net income for FY22 was $36.5 million, a rise of 129.2% compared to FY21. I think the primary drivers of higher net income were higher net sales and a decline in other expenses brought on by the effect of pre-tax debt refinancing costs of $7.6 million accrued in Q1 FY21.
PMTS's Investor Relations
The net sales for Q4 FY22 were $126.4 million , a rise of 35.6% compared to Q4 FY21. I believe strong performance in prepaid debit and debit and credit segment was the reason behind increased net sales. The revenue from the debit and credit segment grew by 35% in Q4 FY22 compared to Q4 FY21. I believe the main reason behind the rise was the higher demand for its personalization services and Card@Once instant issuance solutions. The revenue from the prepaid debit segment grew by 39% in Q4 FY22 compared to Q4 FY21. I believe the main reason behind revenue growth in the prepaid debit segment was growth with their existing customers. The gross profit margin in Q4 FY22 was 37.5% which was 33.1% in Q4 FY21. I believe operating leverage from higher revenues was the main reason behind the increase in gross profit margin. The net income for Q4 FY22 was $12.4 million compared to $673 thousand in Q4 FY21. PMTS continues to impress me; they are on a significant growth trajectory and are looking fundamentally strong. Their financial performance in FY22 was excellent, in my opinion.
Technical Analysis
TradingView
PMTS is trading at the level of $43. In March 2022, it was trading at $16, and in one year, it reached $43. Many of you must have thought that it has stretched a lot and a correction is due, but I think it can increase by another 50% in the coming times. I am saying this because it has broken out of a huge resistance zone of $37 and formed a strong green candle above $37, indicating that buyers are still active. I see no barriers above $37, and I believe that it can reach its all-time high of $65 in the coming times. So I am long on PMTS stock.
Should One Invest In PMTS?
Seeking Alpha
The revenue estimate for FY23 is around $499.5 million, which is 5% higher than FY22 revenue. Since 2018 its revenue growth has been significant, and the management expects that it will continue to maintain its growth trajectory. There are several reasons which I think sets them apart from its competitors, like its innovative products and better product quality. In 2022 when almost everyone in the industry was facing supply chain issues, they were able to tackle it, and in my opinion, it was one of the leading reasons behind its financial success in FY22. Due to its diverse product portfolio like Card@Once, which has a high demand among its customers, expanding secured card production capacity, and proactive inventory management, it gained significant market share in 2022 compared to 2021. I believe due to the efficient management and healthy market share they have acquired; they might achieve their revenue goals.
Looking at its valuation. I will use the Price / Sales and EV / EBIT ratio to judge its valuation. The Price / Sales ratio of a firm is calculated by dividing a firm’s market capitalization by its annual sales over the past twelve months. It has a Price / Sales ((FWD)) r atio of 0.98x compared to the sector ratio of 2.65x. The EV / EBIT ratio compares a firm’s enterprise value to its EBIT. It has an EV / EBIT ((FWD)) ratio of 9.22x compared to the sector ratio of 16.31x. After looking at both ratios, I believe they are undervalued. In my view, the valuation is justified as the company is growing at a significant pace compared to its peers and has been doing financially well for the last five years. This is why I believe they are undervalued and have a lot of growth potential.
Risk
Orders are more vulnerable to cancellations, reductions, price renegotiations or postponements, or changes in customer inventory management practices during industry overcapacity or when customers experience difficulties in the end markets. As a result, management cannot accurately predict production levels, net sales, profits, and cash flows for the upcoming quarter or full year. Due to these factors, reduced visibility may cause its net sales, operating results, and cash flows to diverge significantly from its forecasts. As a result, the company's balance sheet could be adversely affected by it.
Bottom Line
They continue to impress by posting yet another solid annual and quarterly results. Their net sales and income have grown significantly in FY22, and management has provided optimistic revenue guidance for FY23. In addition, its technical chart looks bullish, so it’s a perfect blend of solid fundamentals and technicals. I believe they are undervalued and can provide significant returns to their shareholders in the future. Hence, I assign a buy rating on PMTS.
For further details see:
CPI Card Group: Perfect Blend Of Strong Fundamentals And Technicals