Show Me the Money

I continue to brave the wilds of the stock market, hoping to give my colleagues over at Motley Fool Hidden Gems a bit of food for thought. Today, I'd like to introduce you to Cash Systems (NYSE: CKN  ) .

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 (Nasdaq: WYNN  ) , Caesars Entertainment (NYSE: CZR  ) , or MGM Mirage (NYSE: MGM  ) . Since the gaming and casino sector has been going gangbusters for quite some time, Cash Systems may have found a way to profit from customers' losses.

One of Cash Systems' notable competitors is the megasized, $2.7 billion Global Payments (NYSE: GPN  ) , a far more diversified firm. Since we're looking for upstarts, a Goliath-sized rival shouldn't keep us away.

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:

  1. Market cap under $2.5 billion? Yes -- $137 million.

  2. 15% historical and projected earnings growth? Yes. Strong earnings growth over recent periods, and analysts estimate 42.5% growth for the next five years.

  3. Free cash flow positive? No.

  4. MC/FCF less than P/E? N/A.

  5. MC/FCF/five-year growth rate under 0.66? N/A.

  6. Debt 20% of equity and reasonable? Yes -- per trailing 12-month numbers, 15.1%.

  7. 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.

  8. 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.

More high-rolling Foolishness:

Who says high rollers always win big? Sometimes the safest bets lead to the richest payouts. To find great companies the market overlooks, sign up today for a 30-day free trial toMotley Fool Hidden Gems.

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.


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