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Payment Data Systems (PYDS) a Good Buy at Current Price Point

Jul 09, 2018 (Baystreet.ca via COMTEX) --

- PYDS reported strong financial performance for the first quarter

- The company ended the quarter with robust liquidity

- It expanded its geographical reach while scouting for M&A opportunities

Payment Data Systems Inc. (NASDAQ:PYDS) is one of the most prominent players in the integrated payment segment. The company has created a niche for itself in the market with its focus on providing comprehensive payment solutions. The company recently reported its financial performance for the first quarter of FY2018. Payment Data Systems maintained the previous trend of showing consistent growth in the revenue as it reported 108 percent jump to $5.8 million. The company had reported $2.8 million in revenue for the corresponding quarter of the previous year. Its transaction volume also soared as the company processed more than 2.8 million transactions during the quarter. These transactions amounted to a whopping $782 million, bringing the company closer to hitting $1 billion in quarterly transactions. The first quarter also saw 5 percent increase in its electronic check transaction volume over Q4 2017 figures.

Payment Data Systems showed impressive growth in several areas. The company reported its gross margin at 21 percent while it had reported 33.5 percent margin in the corresponding quarter of the previous year. However, thanks to higher revenue, its absolute gross margin stood at $1.3 million, up from $0.9 million in Q1 2017. The increase in adjusted EBITDA loss and net loss may seem concerning as Payment Data Systems reported $0.2 million and $1.05 million respectively. The corresponding figures for Q1 2017 stood at $0.1 million in earnings and a net loss of $0.3 million. But expenditure related to future growth may attribute for the additional expenses.

Future Plans

However, it needs to be kept in mind that Payment Data Systems is a fast growing company, requiring higher SG&A and development expenses, which may compromise its margins. These high growth companies also tend to have higher capital expenditure. But these are bullish signs.

Payment Data Systems recently announced its new office location in Tennessee. The new location will allow the company to further expand its merchant support and inside sales functions. As the company builds its revenue base and achieves scales of economy, it is expected to boost its margins as well. Additionally, the new site will also let the company service its healthcare segment in a better way as Nashville is widely considered to be a major hub for healthcare businesses. The new development also sheds light on the company’s ambitious future plans and growth.

Apart from growing organically, the company also plans to fuel its growth through possible alliances including mergers and acquisitions. Under the former option, Payment Data Systems is looking to bolster its ACH banking relationships while also focusing on enhancing its payment processing platform. The company also plans to boost its presence in Prepaid Services segment for both B2B and B2C markets. The company also stands to benefit from overall growth in mobile payment segment. According to a report released by CapGemini and BNP Paribas’ World Payments Report, mobile payment segment is expected to show CAGR of 21.8 percent through 2020. Payment Data Systems is well positioned in the market to benefit immensely from this growth.

Owing to strong secular growth in mobile payment segment, merger and acquisition activities are also heating up. Payment Data Systems also plans to fuel its expansion through this route as it specifically looks for acquisition targets to boost its credit card processing portfolio. One of its most prominent acquisitions was of Singular. The $5 million deal was concluded in September, 2017. The acquisition helped Payment Data Systems in diversifying its portfolio and augmenting the revenue. While the company does not have prospective M&A deal, it is open to any such new opportunities. Such acquisition may not only help the company in increasing its revenue base, but also in expanding its capital base and size. It plans to use its business cash flows for funding its acquisitions. The company ended the first quarter of 2018 with $3.5 million in cash and cash equivalents, making it a financially stable organization. The company also has a clean balance sheet with no debt, further enhancing its credibility.

Investment Thesis

Despite some major pullback, Payment Data Systems stock is up nearly 34 percent on Year to Date basis, while it declined 6 percent in the past 3 months. However, the contraction in the stock price is mainly due to macro economic reasons including the decline in broader markets. The stock showed resilience as it kept its decline rate lower than the contraction in the overall market. The stock price also proves that the company fundamentals are still intact and the long term potential of the stock remains strong. With the stock price trading substantially lower than its 52 weeks high of $4.10, Payment Data Systems is an attractive buy at the moment. The recent announcements of positive quarterly numbers and robust industry scenario are going in favor of the company. The stock is recommended a Buy at the current price point with medium to long term investment horizon.

Disclaimer:

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/.

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