Paysign (PAYS) Stock Research Report
October 15th, 2021
Quick Stock Overview
Ticker: PAYS
Source: www.tikr.com
Key Data
Sector: Industrials
Sales ($M): 20
Industry: Specialty business services
Net Cash per share: $0.05
Market Capitalization ($M): 129
Equity per share: $0.23
Price to sales: 6.4
P/E: -0.2
Investment Thesis
Back To Capital-Efficient Companies
Having covered a string of large and complex companies, I wanted to focus on smaller, easier-to-understand companies. The recent turmoil in the energy sector has given us a great opportunity, which I have explored quite extensively for a few reports, including gas midstream, renewables, and two utilities.
But ultimately, I intend for my portfolio to include some longer-term compounders that can generate more profits by reinvesting their profits.
A business with low capital requirements is even better. Investors can protect themselves from inflation so long as the business benefits from it. The alternative is to follow Buffett’s example of buying businesses with a very low capital requirement
“The best businesses during inflation are the businesses that you buy once and then you don’t have to keep making capital investments subsequently,”
Following a lengthy screening process, I think I have found a financial service provider I am interested in. It’s Paysign, a company that sells prepaid cards primarily to the healthcare industry. Despite the fact that the company has a small headcount (70 employees), it has experienced rapid growth in recent years.
Hard Hit by Covid
It appeared as if 2019 would be a record year for Paysign, with the company’s revenues soaring, free cash flow expanding rapidly, and profitability increasing significantly. Exactly when every startup dreams of reaching the exponential phase, the entire system crashed down in 2020 due to…well you know what.
From the company’s market cap and share price, you can see that it enjoyed a beautiful upward trend. A few months later, Covid disrupted the growth pattern of the company, shattering its valuation in the process.
But not so fast. I was initially attracted to Paysign due to its good free cash flow (and price to free cash flow) even though it had negative earnings. Only one of two scenarios was likely to be true, so I dug deeper:
The free cash flow was temporary or an accounting fluke, and the company was deeply in trouble, or…
There were likely temporary negative earnings, and the market price had yet to realize it, so we are able to buy it at a discount
As a result, I went on to learn more about Paysign’s business in an attempt to improve my understanding of it.