This little bugger, with a $137 million market cap, provides check-cashing and other financial services for casinos and their patrons. Its credit and debit card cash-advance products enable casino patrons to restock their wallets via the company's software and equipment. Its ATM services include the vault cash for the ATMs' operation, plus maintenance and armored-car service. Clients include American-owned casinos and vendors in the United States and the Caribbean.
The company caught my eye for two reasons: It's a holding in Ron Baron's Small Cap Fund, and it deals in what I call "parasite businesses" that feed off other established businesses. How many of us have taken that Walk of Shame from a casino table to an ATM? Gaming is a losing proposition, unless you happen to be Wynn Resorts
One of Cash Systems' notable competitors is the megasized, $2.7 billion Global Payments
Let's get down to the numbers. Trading at $8.29 on 2005 estimated analyst earnings of $0.19, the company's current-year P/E is 44. Estimated 2006 earnings of $0.31 give us a forward P/E of 27. With that kind of earnings growth (63%), Cash Systems is sitting on a current PEG of 0.7, with 0.43 for next year's estimates. At last, we've found a company that seems pretty cheap. Now, as far as the rest of my Hidden Gems pre-screen criteria:
Market cap under $2.5 billion? Yes -- $137 million.
15% historical and projected earnings growth? Yes. Strong earnings growth over recent periods, and analysts estimate 42.5% growth for the next five years.
Free cash flow positive? No.
MC/FCF less than P/E? N/A.
MC/FCF/five-year growth rate under 0.66? N/A.
Debt 20% of equity and reasonable? Yes -- per trailing 12-month numbers, 15.1%.
Net profit margins greater than 7%? No. 4.5% for the most recently available annual statements and 4.15% on a trailing-12-month basis.
- Insider ownership of 20%-50%? Yup -- 42%.
Although the company hasn't yet hit a few key metrics -- it needs to get cash flowing and bump margins up -- Cash Systems may be worth watching. Keep in mind, though, that barriers to entry in its business aren't very high. Perhaps stiff competition is keeping those key metrics from soaring.
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Fool contributor Lawrence Meyers owns no stocks in this article but is searching for one to buy. Don't listen to him, though -- do your own research.