Please ensure Javascript is enabled for purposes of website accessibility

Is MoneyGram International a Buy?

By Dave Kovaleski - Feb 4, 2021 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The money transfer stock rocketed more than 160% last year.

Long before the Cash App and Venmo came along, MoneyGram International (MGI 0.51%) was one of the leaders in money transfers. You've probably used it before at your supermarket or convenience store to send money to someone, for a fee, without using a bank.

Over the past 20 years, the company's market share and stock price have steadily plummeted for many reasons. It was slow to adapt to online money transfers, and then it got crushed in the financial crisis of 2007-2008 as it lost billions in risky mortgage-backed securities when the housing bubble burst. That led to a management shake-up and tons of debt, which the company has been trying to dig out from ever since.

In the past few years, the company has been slowly rebuilding and adapting to the new mobile era of money transfers. Where does it stand now? Let's take a look.

Two people using mobile apps to send and receive money.

Image source: Getty Images.

Digital transformation

While MoneyGram's fourth-quarter and full-year numbers won't be in until later this month, the company did report a huge spike in users for its mobile app over the holidays. For December, MoneyGram Online posted cross-border transaction growth of 142% year over year, making it the largest number of transactions the app has ever had in a month.

In the third quarter, the online channel, where customers can send and receive money either online or through the app, saw transactions grow 111% year over year. Revenue in this channel was up 114% from a year ago.

With the broader availability of the app around the world, the revenue gains came mostly from cross-border online transactions, which saw revenue climb 176% year over year and the number of transactions jump 174%. The gains were due in part to the pandemic as people flocked to the digital service not only for the convenience, but also to practice social distancing.

But MoneyGram has also been ramping up its digital infrastructure and is now available in 81 countries, up from 60 just a year ago. It has actively been creating partnerships to expand its digital footprint, most recently in Africa.

Overall, digital transactions made up 27% of all transactions in the quarter, up from 20% in the third quarter of 2019. MoneyGram, which has been around since 1940 in some form or another, has some 350,000 locations in 200 countries around the world, so it has a huge worldwide network, second only to Western Union.

The big gains in the digital channel offset losses in the traditional channels, but still, revenue was up 1% to $323 million. And net income was $10.9 million, up from a $7.7 million net loss a year ago.

As the company continues to ramp up its digital capabilities worldwide, the earnings should follow, since the use of cashless payments and mobile wallets is only going to increase over the next decade and beyond.

On the third-quarter earnings call, CEO Alex Holmes said:

Our consumer-direct channel, MoneyGram Online, the largest component of our overall digital business, has been a catalyst for new customer acquisition. Consumer demand for our app has been skyrocketing, and 85% of our online transactions are now done on mobile devices. This business continues to be a significant driver of growth and profitability as we quickly scale. 

Is it a buy?

While MoneyGram's long-term growth story looks good, the fintech still has a lot of debt, about $857 million. But its free cash flow has improved, up 173% to $25 million, and the EBITDA margin went up 550 basis points to 21%.

MoneyGram had a good year in 2020, with the stock price up about 160% -- the stock's best return in more than a decade. But after rising almost 50% more so far in 2021, it actually might be overpriced at the moment, trading at about 36 times forward earnings. And as a sign of how far it had fallen, it only traded around $8 a share as of Wednesday.

But I think the company has made a lot of good moves to set itself up for long-term success. It's definitely a stock I would keep on my radar, but I'd wait to see where the fourth-quarter numbers come in before buying.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

MoneyGram International, Inc. Stock Quote
MoneyGram International, Inc.
MGI
$9.77 (0.51%) $0.05
The Western Union Company Stock Quote
The Western Union Company
WU
$17.36 (-0.29%) $0.05
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$78.65 (-3.12%) $-2.53
Block, Inc. Stock Quote
Block, Inc.
SQ
$75.88 (-9.02%) $-7.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
334%
 
S&P 500 Returns
117%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.