What happened

Shares of credit card manufacturer CPI Card Group (PMTS -0.64%) jumped in early trading on the Nasdaq Wednesday, up 13.2% through 10:30 a.m. ET after the company reported a tremendous year-over-year increase in per-share profits.

Heading into Q4, the single analyst covering CPI had forecast the company would earn $0.37 per share on quarterly sales of $103.3 million. CPI beat those numbers handily, however, on both the top and bottom lines. Revenue for the quarter was $126.4 million, 22% better than expected. Earnings came in at $1.06 per share, nearly three times the forecast amount.    

So what

It gets better.

Sales for CPI's full fiscal year 2022 surged 27% year over year to $476 million, driven by strong performance in sales of contactless cards, eco-focused (i.e., recycled plastic) cards, and also high-margin software-as-a-service instant card issuances. And CPI got better as the year grew longer. Q4 sales growth alone accelerated to 36%.  

Similarly with earnings, profits per share were $3.11 for the year (up 129% versus 2021). Zoom in on the quarterly results, and CPI's $1.06 per share earned in Q4 2022 grew 1,667% when compared to the company's Q4 2021 earnings -- a full $1 more than last year's $0.06 profit.

The change in free cash flow for the year was more modest, but still good: from $10.1 million to $13.4 million, a 33% increase.

Now what

Heading into 2023, CPI remains optimistic about its future. "Our outstanding fourth quarter performance capped another strong growth year for CPI, and we believe the Company gained substantial market share," commented CEO Scott Scheirman. Overall, growth in the credit cards market is expected to slow in 2023, but CPI aims to keep the growth going by continuing to capture market share.

Result: Total sales growth is expected to be only in the "mid-single digit" range this year -- but free cash flow could more than double to $27 million or more.

At a recent valuation of $434 million, that works out to about a 16-times-current year FCF valuation on the stock (or a debt-adjusted 28x). For a company that grew FCF 33% last year -- and plans to grow it even faster this year -- that seems a fair price to me.