Shares of Green Dot (Nasdaq: GDOT ) hit a 52-week low yesterday. Let's look at how the company got here and if cloudy skies are still in the forecast.
How it got here
Why Green Dot, a provider of prepaid debit cards, is trading at a new low is a general mystery to me, as the entire credit services sector has been on fire. Credit processors Visa (NYSE: V ) and MasterCard (NYSE: MA ) have both seen double-digit international transaction growth, while Green Dot's direct prepaid card competitor, NetSpend Holdings (Nasdaq: NTSP ) , also logged robust growth with the number of direct deposits climbing by 20%.
Green Dot has been no slouch either. Despite management claiming the company missed its target growth for its most recently ended quarter, Green Dot grew revenue by 26% and non-GAAP income by 40%. The company has also been aggressively adding high-profile companies to its network, including Sears Holdings' Kmart and Rite Aid, which is in addition to longtime partners CVS Caremark, Walgreen, and Wal-Mart.
How it stacks up
Let's see how Green Dot compares to its peers.
GDOT data by YCharts
It appears that investors are anticipating pressure on prepaid debit companies' business from American Express' (NYSE: AXP ) entrance into the prepaid market.
Price / Book
Price / Cash Flow
|Discover Financial Services
You can clearly see the premium placed upon companies that don't have to deal with lending risk. American Express, for instance, isn't like Visa or MasterCard in that in addition to processing credit transactions, it physically lends to consumers, which could result in defaults and charge-offs if not paid. That's not something Green Dot, NetSpend, or the pure-play credit processors have to worry about. Overall, however, this sector seems dirt cheap in light of its rapid growth.
Now for the real question: What's next for Green Dot? The answer really depends on whether or not it can quickly integrate its recent purchases that made it not only a holding bank but a vertically integrated credit services company. It also remains to be seen if it can keep up with larger rivals like AmEx.
Our very own CAPS community gives the company a two-star rating (out of five), with 47 out of 60 members expecting it to outperform. I recently made a CAPScall of outperform on Green Dot and am down a modest two points on that call at the moment. In my opinion, Green Dot represents one of the few companies ready to capitalize on the explosion in prepaid cards. Now that it's a holding bank, it can expand the services it can offer consumers, it no longer has to rely on a third-party bank to hold its accounts, and it can regulate its own costs. Green Dot looks like a long-term growth play and a genuine turnaround candidate at these levels.
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