Being a socially responsible company is not a zero-sum game, where the more socially responsible you are, the worse your financial performance is, and vice versa. Profits don't go out the window when you treat the environment better. And similarly, socially responsible investing is not a zero-sum game, where the more socially responsible you are, the worse your portfolio's performance is. So go ahead and consider investing in some socially responsible companies -- such as Euronet Worldwide (NASDAQ:EEFT).
In general, socially responsible investments can be quite competitive with their counterparts. A 2011 study from Harvard Business School, for example, looked at 18 years of data and found "strong evidence that firms emphasizing [socially responsible] practices significantly outperform similar firms that do not, as measured by both financial and stock market returns." Meanwhile, a 2014 study by the folks at asset-management firm New Amsterdam Partners found "a positive linkage between stocks with higher ESG [environmental, social, and governance] ratings and superior returns and reduced price volatility."
Why might you invest, or not, invest in Euronet Worldwide?
Founded in 1994, based in Kansas, and sporting a market capitalization near $3 billion, Euronet Worldwide is in the electronic financial payments business, serving financial institutions, retailers, service providers, and individual consumers. Check out the breadth of its operations, in its own words:
Euronet's global payment network is extensive -- including 19,808 ATMs, approximately 72,000 EFT [electronic financial transaction] POS [point of sale] terminals, and a growing portfolio of outsourced debit and credit card services which are under management in 47 countries; card software solutions; a prepaid processing network of approximately 667,000 POS terminals at approximately 295,000 retailer locations in 31 countries; and a global money transfer network of approximately 241,000 locations serving 131 countries.
In the company's third quarter, revenue surged 26% year over year and adjusted operating income grew 41%. The company's number of transactions processed rose 13% to 655 million. Revenue and gross margins have been steadily growing over the past decade, but net margins have been less consistent. To its credit, Euronet Worldwide is free-cash-flow positive, and net income hit a decade-long high last year.
Some notable recent events for Euronet Worldwide have been its acquisition of HiFX earlier this year, and a partnership with Wal-Mart (NYSE:WMT). The price tag for HiFX, a specialist in online payments and foreign exchange services, was $242 million, and the acquisition is expected to turbocharge Euronet's digital payments strategy. The deal with Wal-Mart is to power the retailer's Walmart-2-Walmart initiative, offering more financial services to customers. (It's worth noting that the initiative isn't expected to be a growth driver for Wal-Mart on its own, but it's expected to drive more traffic to stores, which should boost overall sales.) With Wal-Mart having, as you probably know, more than a few stores and more than a few customers, this is a likely big win for Euronet Worldwide.
What's so socially responsible about Euronet Worldwide?
At CSRhub.com, Euronet Worldwide earns above-average marks in all graded social responsibility categories, from governance to environment.
The company doesn't list green initiatives on its website, but its entire business is rather socially responsible, as it's not capital-intensive, requiring no polluting factories or factory labor from regions where human rights abuses could be a concern. Most of all, it's not in any of the very socially problematic industries, such as guns or cigarettes.
So should you invest in Euronet Worldwide's stock? Well, it might appear overvalued, with its recent P/E ratio near 36. But it's growing relatively briskly, and its forward-looking P/E is a more reasonable 18, well below its five-year average in the mid 20s. That's better, but the company's price-to-sales and price-to-cash-flow ratios are both above their five-year average (though below industry averages). Overall, the stock isn't a screaming buy at recent levels, but you might want to add it to your watchlist if it interests you, waiting for it to fall to a more attractive level.