Paysign Inc. (Nasdaq: PAYS) is an integrated prepaid card and payment processor that has multiple positive catalysts working work for it, though the stock, trading near levels seen early last year, has yet to respond to any of them. Multiple catalysts are shaping up that may lead to value unlocking opportunities for public shareholders.
Problems at Wirecard AG (WDI.DE), with siphoned off cash and fraud allegations against former CEO, will not only help Paysign garner share from the troubled company’s clients but also improve the broader market dynamics, including pricing.
Already growing at one of the fastest rates of growth in the payment processing industry, Paysign is uniquely positioned to grow from increased spending by healthcare and pharmaceutical companies.
The stock is underappreciated, both relative to other players in the payment processing industry as well as valuing the assets on a standalone basis, and highlight due to Wirecard’s troubles may help the company unlock this value
What does it do?
The company provides vertically integrated prepaid card programs and payment processing services, but the company differentiates itself with its focus and strong position in the healthcare vertical. There are two categories of prepaid debit cards – reloadable and non-reloadable.
Paysign does transaction processing, cardholder enrollment, value loading, cardholder account management, reporting, etc., for healthcare companies who use these cards for customer loyalty and patient adherence payments. Paysign charges fees as per transactions made, interchange, card program management, and settlement.
Why is the stock in the penalty box?
In short, the company suffered from growing pains. Earlier this year, the company delayed on its 10-K filing, due to auditor requests for additional data, which spooked investors.
Section 404(b) of the Sarbanes-Oxley Act requires all publicly traded firms to get an outside audit of their internal controls over financial reporting. Only non-accelerated filers, the ceiling for which is a market cap of $75 million, are exempt.
Finally, 10-K was filed and the company hired third-party advisors to upgrade financial controls and reporting systems. Even though there were no changes to the preliminary financial numbers reported earlier, the damage was done and the stock is just starting to come out of the doghouse.
How is the sector doing? Enjoying favorable tailwinds.
|Large||Growth Next Year||Gross Margins (Adj.)||P/ Earnings Next Yr.|
|Green Dot Corp||7%||64%||35|
|Intelligent Systems Corp||30%||64%||18|
As the chart above shows, the payment processing industry is enjoying strong momentum, with high sales growth and strong profitability margins, across the board, be it the large players with the dominant market position or small players who compete with Paysign for some businesses.
The digitalization of the economy may only accelerate these favorable market dynamics for most players. Paysign is benefiting from its focus on the healthcare vertical, where the spending is growing disproportionately faster than the rest.
Highest sales growth, good, but can they maintain it? Looks like it.
Paysign is growing fast. Last year revenue increased 48% and net income was up 188%, impressive by any standards, but more importantly, underlying operating metrics that serve as good leading indicators were equally strong.
The amount loaded on the card was up 38% and high card balances lead to more interest income for the company, which grew 215% over the last year, and higher consolidated cash on the balance sheet that was up 44% over the same time period.
Conversion rate, which measures the percentage of dollar volume loaded on cards that turn into revenue for the company, also went up from 3.77% to 4.04%. So more usage leads to more sales, more cash on the balance sheet, and improved rate of conversion.
As for future growth drivers, two catalysts look especially promising,
- Expansion into new verticals and new card programs. Last year, the company added a new business line and 49 new card programs.
- Push into the pharmaceuticals industry. Sales from pharma, though small, were up 20x, with help from a new business line, seven new programs, and net dollar value loaded up 70% during the most recent quarter.
What can help unlock this value?
The collapse of Wirecard will definitely draw more interest towards companies that may benefit disproportionately and Paysign is among them, especially in healthcare vertical.
|Enterprise Value $M (Mkt Cap- Cash)||$371|
|Price Per Cardholder||$124|
As the chart above shows, the current enterprise value per cardholder is barely $124, and acquiring new cardholders won’t be much cheaper than that. So the company would be a good acquisition candidate for many in the payment processing industry.
One potential acquirer is Green Dot (Nasdaq: GDOT). Interestingly, Dan Henry, Chairman of Paysign since 2018, was appointed Chief Executive Officer, President of Green Dot Corporation, earlier this year. Paysign Board has decided to allow him to continue at his post at Paysign as well. Now that Green Dot stock is rising, they have the currency to make the move as well.