A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
We believe Green Dot Corporation GDOT is a stock that investors should retain in their portfolio. Accelerated investments in both products and platform parts of its business have dampened the company’s short-term prospects but bode well for the mid to long-term.
The stock, though down a massive 39.7% year to date, should recover when these investments start contributing to the company’s top and bottom lines.
Notably, Green Dot intends to invest an incremental $60 million this year in marketing new products and developing BaaS 3.0 and BaaS 4.0 technology platforms. This investment is expected to deliver incremental active accounts of more than one million and incremental revenues ranging between $200 million to $300 million by the end of 2019.
Let’s take a look at some other factors that bode well for Green Dot.
‘New Kind of Bank’
Green Dot’s long-term strategic plan to be a ‘New Kind of Bank’ is leading to impressive results. Under the plan, the company is focusing on the use of technology ubiquitous digital and retail brick-and-mortar distribution and large partnerships. It is trying to increase revenue contribution from rising customer satisfaction instead of rising customer penalty fees. These initiatives are expected to increase operating and financial momentum significantly, moving ahead.
Green Dot Corporation Revenue (TTM)
Green Dot Corporation revenue-ttm | Green Dot Corporation Quote
The company’s Banking as a Service or BaaS platform programs are contributing significantly to GDV, active card and revenue growth. To make the platform more productive and increase its contribution, Green Dot is increasingly helping its BaaS partners like Apple AAPL, Intuit INTU, PayPal and Uber to expand their offerings.
Green Dot’s long-lasting relationship with Walmart WMT is a key driver of its operating revenues. Operating revenues derived from products and services offered through Walmart represented 37%, 40% and 45% of total operating revenues for 2018, 2017 and 2016, respectively.
Solid Cash Position
As of Mar 31, 2019, the company had cash, cash equivalents and restricted cash of approximately $1.7 billion and no long-term debt. It retains all of its earnings as it does not pay any dividend. This gives Green Dot more flexibility to pursue strategic acquisitions and invest in growth initiatives.
Currently, Green Dot is a 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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