Should You Hold On to Netspend?

With shares of Netspend Holdings (NASDAQ:NTSP) trading at around $15.98, 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 offers reloadable prepaid debit cards to under-banked consumers. It has 2.35 million active cards and 500 retail distributors at 60,000 U.S. locations. It also has reload services through approximately 450 distributors at approximately 130,000 locations. The massive distribution market and revenue growth made Netspend appealing to Total System Services Inc. (NYSE:TSS). Total System Services recently acquired Netspend for $1.4 billion, or $16 per share. Since that acquisition took place, Netspend’s stock hasn’t moved much, but the trend has been up. That said, is this likely to be a good trade? An opinion will be formed in the Conclusion section. For now, let’s take a look at some comparative numbers.

The chart below compares basic fundamentals for Netspend, Green Dot Corporation (NYSE:GDOT), and Net1 Ueps Technologies Inc. (NASDAQ:UEPS). Netspend has a market cap of $1.11 billion, Green Dot has a market cap of $573.74 million, and Net 1 Ueps has a market cap of $318.48 million.

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NTSP

GDOT

UEPS

Trailing   P/E

71.29

14.87

35.07

Forward   P/E

17.55

12.65

5.06

Profit   Margin

5.37%

8.52%

2.17%

ROE

13.08%

16.26%

2.62%

Operating   Cash Flow

$37.98 Million

$102.03 Million

 $18.19 Million

Dividend   Yield

N/A

N/A

N/A

Short   Position

N/A

13.00%

0.90%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Normal        

The debt-to-equity ratio for Netspend is slightly stronger than the industry average of 0.68.

Debt-To-Equity

Cash

Long-Term Debt

NTSP

0.68

$30.62 Million

$80.00 Million

GDOT

0.15

$408.83 Million

$50.72 Million

UEPS

0.25

$38.12 Million

$94.21 Million

 

T = Technicals Are Somewhat Irrelevant     

Netspend has performed well over the past year, but some of this has to do with the acquisition. The stock hasn’t moved much since the acquisition.

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1 Month

Year-To-Date

1 Year

3 Year

NTSP

0.44%

35.19%

127.30%

N/A

GDOT

5.51%

30.33%

-36.95%

N/A

UEPS

17.33%

37.77%

-20.81%

-57.54%

 

At $15.98, Netspend is trading above all its averages.

50-Day   SMA

14.60

100-Day   SMA

13.03

200-Day   SMA

11.33

 

E = Earnings Have Been Inconsistent                       

Revenue has consistently improved on an annual basis. Actually, not many companies throughout the broader market have seen such impressive revenue growth from 2011 to 2012. Earnings have been inconsistent.

2008

2009

2010

2011

2012

Revenue   ($)in   millions

183.17

225.00

275.39

306.26

351.33

Diluted   EPS ($)

-0.74

0.18

0.26

0.36

0.22

 

Looking at the previous quarter on a year-over-year basis, there were significant improvements in revenue and earnings. On a sequential basis, there were moderate improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   millions

76.76

91.39

85.33

84.89

89.71

Diluted   EPS ($)

0.11

-0.08

0.12

0.05

0.13

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

The electronic financial services industry is expected to grow rapidly over the next several years. The biggest threat is a steep correction in the stock market.

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Conclusion

Those who weren’t invested in Netspend prior to February 27 missed the boat. There would be no sense in investing in a stock where the upside potential is severely limited and the downside potential is enormous if the deal falls through. The deal will likely go through, but why take a chance? Therefore, Netspend is a WAIT AND SEE.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I am currently short technology, financials, the Russell 2000, and the euro.

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