Bumping post as Info for any new holders:
3Pea History and Why Invest now?
Andy, thanks for your interest in the stock.
I'm not going to knock you down for wanting a rational reason to invest in the stock (I am actually a financial analyst so I don't think it's irrational to want to have concrete information before investing in a company).
That being said, I have been a long-term holder in TPNL and have seen the up's and downs.
Firstly, to answer your question about that jump quite awhile back to 1$. Although I was happy about it, I personally don't think the jump was that justified. It was principally driven by a Q4 that had extremely high earnings (compare to the usual quarters). People and especially a few people that had written articles on Seeking Alpha about it drove the stock upwards with optimism that this was going to happen every quarter. The low float makes this easy to move with a few willing buyers. Long story short that Q4 years back was not reflective of a normal quarter and it was simply due to the way that revenues were recognized that it was skewed upwards. (we saw after that the stock drastically corrected when they saw that the next quarters were not like that blow out one!)
Now you might ask about why revenue was recognized this way...
Well, 3Pea operates in many sectors of the prepaid card market. Its main bread and butter is the plasma donation centers but back then they had many "one off" Pharmaceutical or incentive programs running. According to standard accounting practices, revenue is recognized at the end of the programs (which can last many months to potentially years) it just turned out that many of them ended in that Q4 thus having extremely large one-time revenue being recognized.
To cut to the chase about why I believe 3Pea is a good investment at these prices:
- The company has re-focused its business model to focus on its plasma donation centers offering (this is a consistent and reliable stream of income with strong growth - just look up plasma centers growth in the US ~ 15% per year). I like companies that focus on being experts on one main sector, this way they set themselves up as leaders in the space and growth will follow. Furthermore, no more highly skewed quarters from random one-off programs, making earnings much more consistent.
- The other reason the company's stock fell in the past was due to a frivolous legal suit. It was settled, and the CFO at that time was fired. (I trust the current team - the problem was solved yet the company took a large financial hit. The cash flow will dramatically increase ~300k+ per quarter starting in the first half of 2017 as the legal payments will cease by the end of Q1 2017. (Larger cash flow=better enterprise value for the company)
- Growth is starting to pick up on both top and bottom line per the recent quarters (per latest Q:revenue up 38% yoy, substantial decrease in SG&A, and net margins of 17.1%). They are consistently adding centers and adding new clients.
- Over 70% of shares are owned by Management (and ex-management: the CEO's brother, former CTO still owns 2M shares) and recently we saw the first ever "open market stock purchases" by management in the companies entire history. The management team is highly motivated to increase the long-term value of the company and the buying simply makes me more bullish. Also, to answer your question about PR's (which trust me, I've asked multiple times to management). They believe in focusing on managing the business and that over the long term value will be recognized. They are also waiting until their story develops itself a bit more and that cash flow starts flowing after finishing up the last of the legal settlement payments. (I personally see it as a reasonable way to not just throw cash at fancy PR's and promotions)
Lastly, based on industry metrics the company is undervalued (i'll paste my last valuation post under here for you to see)
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Here are the latest multiples for similar industry players (from S&P CIQ)
Mean Comp. Multiples:
TEV/Revenues (LTM):6.3x
TEV/EBITDA (LTM): 28.2x
TEV/EBIT (LTM): 23.1x
P/E: 32x
TEV/Forward Revenue (NTM): 5.82x
Obviously these multiples should be discounted to take into account the higher risk, smaller size and lower liquidity of TPNL (since the Comp list does include a long list with some of the bigger guys in the payment processing space a few of the comps included are: AMEX, VISA, MC, GPN, PLPM, CCN, VPY, WEX, CASS, etc...)
I remember doing some research on this space last year and most takeovers were occurring at 5-10x multiples on revenue. I personally prefer EBITDA multiples as a good proxy for valuing companies.
If we use the approximate EBITDA this Q of ~650k annualized*4=2.6M
Than Apply 15x multiple to be conservative (15*2.6M)=39M/43M shares= 0.91 cents or if you wanted to bump it up to 20 times (still well below most comps) it would give us (15*2.6M=52M/43M shares= $1.21 per share.
Otherwise, using a revenue multiple of 4 times to be conservative using 2.86M*4=11.25M *4x=45M/43M shares would give us $ 1.05 per share. (which is quite reasonable given most takeovers have been recorded at 5-10x revenue.
Finally using a P/E ratio, The company can realistically hit 0.05 eps/yr if not more if we see good growth (Q4 is typically strong).
Applying a 15x multiple (about a 50% discount to current mean multiples) would place the stock at 0.75$/ share. I think a 15x P/E is quite realistic given the multiples that are currently in the card payment processing space.
Its always good to use multiple valuation methods but as you can see, using conservative/reasonable metrics it would not be out of the realm of possibilities to see this stock trade over 50 cents or even towards 1$. Obviously these valuations include only the current company data if the Company lands any bigger contracts or expands in any material way the upside could change drastically.
I am holding long and strong well into 2017 to see how this materializes itself.
Hope this helps - E.
