- Payment Data Systems shares have suffered during the ongoing sell-off
- But the sell-off has created an excellent buying opportunity
- Payment Data Systems continues to execute on its growth plan but remains undervalued
DEERFIELD BEACH, FL / ACCESSWIRE / April 17, 2018 / After making a strong start to the year, the U.S. equity market has come under significant selling pressure. The record high levels reached earlier in the year were driven by the technology sector, specifically the so-called FANG (Facebook, Amazon, Netflix and Google) stocks. In recent weeks though, the FANG stocks have come under pressure amid concern that there might be more regulation coming the way of these companies. Facebook shares have also been impacted by the privacy issue.
The sell-off in the tech sector has pushed the NASDAQ Composite index into red for the year. In the last one month, the tech heavy index has fallen more than 5%. The sell-off in the tech sector has also impacted the broader market. But as with all sell-offs, there are some fundamentally solid companies that have been hit. One such company is Payment Data Systems (PYDS), which continues to make solid progress.
Pullback Amid Sell-Off In Broader Market
Payment Data shares have fallen more than 28%. It has been an extremely volatile period for PYDS as the year-to-date price chart shows.
As the chart shows, there was a sharp pullback in PYDS shares in early February. The stock traded sideways for the rest of month before seeing a sharp recovery in the first half of March. But then we saw another sharp dip in PYDS shares. The pullback on both occasions, early February and mid-March, was due to a sell-off in the broader market. If anything, PYDS' fundamental picture has improved since the start of this year. This was once again highlighted by the recently results for Q4, 2017 and FY2017.
Strong Operating And Financial Performance
2017 ended up as being an excellent year for PYDS. The company finished off the year on a strong note with record Q4 results.
In the fourth quarter of 2017, Payment Data Systems achieved all-time record revenue of $5.6 million. For the full year, revenue was once again a record $14.6 million. The record revenues though were also backed up by robust margins. In Q4, PYDS achieved gross margin of 23.2%, while for the full-year, margins stood at 25.9%. The margin levels achieved by Payment Data Systems are strong by any standards.
More important, the growing revenue and healthy margins are helping Payment Data Systems towards profitability on the EBITDA level. For 2017, the company had an adjusted EBITDA loss of $610,743. Given the ongoing growth in Payment Data's core market, 2018 is expected to be another strong year in terms of revenue growth. If the company can maintain current margin levels, profitability at the EBITDA level can be achieved in 2018 itself.
PYDS also reported strong operating results. 2017 saw more than 10 million transactions processed by the company. In terms of dollar value, the company processed $2.8 billion worth of transactions in 2017. The company achieved a record 78% increase in dollars processed through credit cards and 34% increase in total credit card transactions compared to 2016.
In the fourth quarter of 2017, the company's credit card transaction volumes were up a record 199% compared to the same period in 2016. Credit card dollars processed during the quarter jumped 274% compared to the same period last year.
While electronic check transactions showed a decline on a year-over-year basis (13%), they did show an increase on a sequential basis (7%). This is a positive trend for PYDS as it enters 2018.
Commenting on the strong performance in Q4 2017 and FY2017, Payment Data Systems President and CEO Louis Hoch noted that during the fourth quarter of 2017, the company experienced record transactions and associated revenues. Hoch noted that this was due to the execution of the company's revenue growth plan. PYDS has been growing its revenue organically and acquisitions. More important, PYDS expects the continued execution of its revenue growth plan coupled with its recent product innovations to lead to record revenue in 2018 as well.
Valuation Even More Attractive, Not Much Downside Risk
As a result of the recent pullback, PYDS shares are now trading at a significant discount to the average multiple for the payments processing industry. Assuming even a 20% growth in revenue in 2018, PYDS' top-line would reach nearly $18 million by the end of this year. This translates to a price-to-sales multiple of around 1.7X. For a company operating in an industry that is seeing CAGR of 20% each year for the last five years and is expected to grow at the same pace until 2020, this multiple is too low. For high-growth industries, the average multiple is around 5X sales. Based on 2018 sales forecast, this translates to market capitalization of $90 million for PYDS, representing an upside on a per share basis of 200% from current levels. Moreover, from current levels, there is not much downside risk in PYDS. This is a great opportunity to enter PYDS as the company is poised to create significant value for shareholders in the long-term.
Worldwide Financial Marketing, Inc.
Except for the historical information presented herein, matters discussed in this release contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance, or achievements expressed or implied by such statements. WFM, Inc. is not registered with any financial or securities regulatory authority and does not provide nor claims to provide investment advice or recommendations to readers of this release. For making specific investment decisions, readers should seek their own advice. For full disclosure, please visit: http://wwfinancial.com/legal-disclaimer/.
SOURCE: Worldwide Financial Marketing, Inc.