Looking for a Net Profit in Netspend

With shares of Netspend Holdings (NASDAQ:NTSP) trading at around $15.93, is NTSP an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Netspend Holdings will be acquired by Total System Services (NYSE:TSS) for $1.4 billion, or $16 per share, by mid-2013. Therefore, there isn’t much upside potential to Netspend. Though not likely, it’s possible that the deal won’t go through. The deal must be approved by regulators as well as Netspend shareholders.

Netspend is best known for its reloadable prepaid debit cards and alternative banking options. It has 2.4 million accounts and 62,000 locations. All of these locations sell prepaid debit cards. Total System Services expects the prepaid debit card market to grow by 20 percent annually over the next four years, which is a big reason why it acquired Netspend.

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Currently, Netspend is trading at 72 times earnings, which is well above the industry average of 23 times earnings. Margins are respectable, cash flow is good, and top-line growth has been consistent. However, the balance sheet is in negative territory, and there is a 27.60 percent short position on the stock.

Let’s take a look at some important numbers prior to forming an opinion on Netspend. However, there will be a twist in the Conclusion section. Don’t expect anything like the twist from “The Sixth Sense.” It will be a little more subtle…