Intelligent Systems Stock Forecast: While there are still a few cash-only establishments, the truth is that in today’s marketplace, business runs on plastic.
This trend goes beyond e-commerce, and it encompasses far more than traditional credit cards. Payment options have expanded to include debit cards that draw directly from available checking balances, as well as pre-paid cards, private label cards, and loyalty programs.
Nearly everyone has a collection of plastic tags dangling from keychains, and consumers expect the convenience and speed of paying for their purchases with a quick card swipe no more counting out bills and waiting for a handful of change. In this new world, companies that offer advanced card processing solutions are in high demand. Through its CoreCard subsidiary, Intelligent Systems is one such company.
There is no question that e-commerce is growing, but it hasn’t overtaken in-person transactions quite yet.
According to the most recent report released by the US Federal Reserve, a total of 77 percent of all payments were made in-person. However, that doesn’t mean they were made with cash.
True, cash still has its place in brick-and-mortar shopping, making up 55 percent of transactions under $10 and 30 percent of all transactions, but that leaves a huge percent to plastic.
In survey after survey, consumers have made it clear that they prefer the simplicity and security of cards. One 2018 study asked a cross-section of consumers to rank their favorite payment methods. Debit cards came out on top with 54 percent of the votes, and another 26 percent indicated that credit cards were their go-to payment solution. Just 14 percent stated they favor cash and that figure has dropped year over year.
Clearly, there is a need for card payment technology, and companies that offer high levels of efficiency and security have plenty of room for growth. For investors, the big question is whether Intelligent Systems is poised for growth and profit.
Intelligent Systems is in the business of buying companies that show promise, then devoting management time and various resources, financial and otherwise, to supporting the company’s success.
Intelligent Systems focuses on companies with technological expertise, and it operates selected businesses as subsidiaries. The company has been using this model for more than 40 years with strong results. Examples of winners that were later sold at a profit to shareholders include Quadram, which was sold to National Semiconductor, and Video 7, which was acquired by LSI Logic and Intecolor.
In 2015, Intelligent Systems sold its interests in ChemFree Corporation for $21.6 million, which put it in an excellent position to devote its full attention to CoreCard. The cash infusion made it possible for CoreCard to develop its platform further, creating a state-of-the-art suite of card solutions for its clients.
In fact, over the course of 10 years, Intelligent Systems has invested more than $25 million in CoreCard technology, putting it in position to become an industry leader.
The CoreCard platform licenses software to organizations that manage card processing in-house. In addition, it offers start-to-finish payment processing services for organizations that prefer to outsource this function.
Clients include financial institutions, accounts receivable companies, and retailers, who use the CoreCard system to manage credit and debit card transactions, prepaid cards, fleet cards, private label cards, loyalty programs, and small loans.
Management expects the demand for CoreCard services to grow, and as it does, they expect to generate value for shareholders. But what do the numbers say?
On November 1, 2019, Intelligent Systems announced its third quarter results, showing that growth did occur as projected by business leaders earlier in the year. Total third quarter revenue came in at $9.5 million, which represents a 76 percent year over year increase.
Income from operations totaled $4.2 million, which fell comfortably into the projected range of $4 million to $4.3 million. That’s an impressive year over year increase from third quarter 2018’s $1.736 million.
Net income came in at $3.092 for the third quarter, which compares favorably to third quarter 2018’s $1.866 million, and earnings per diluted share were reported at $0.34. Business leaders credited these improved numbers to a growing customer base.
For the nine month period ending September 30, 2019, total net revenue was $24 million, as compared to $14.046 million for the same period in 2018. Net income was $7.272 million versus 2018’s $3.817 million, and diluted earnings per share were $0.81, compared to 2018’s $0.43.
Intelligent Systems is still planning to invest in research and development, with the goal of improving infrastructure and staying on top of technological advances.
The strategy is to ensure that CoreCard’s operations are scalable to meet increasing demand, particularly on the processing side. Far more prospective clients show interest in end-to-end processing services than they do in licensing the software for in-house processing.
These figures look promising from an investor’s perspective, but can Intelligent Systems continue to turn a profit and deliver shareholder value? Specifically, is Intelligent Systems a buy?
Until the beginning of 2018, Intelligent Systems stock was not particularly interesting. However, that year it started to move, and by the beginning of 2019, it had nearly tripled in value.
It has tripled again since the start of this year, as investors have responded to increasingly impressive reports of profitability.
Based on the company’s strategic direction and projected revenues and profits for 2020, there is a good chance it will grow more. Investors probably won’t see this stock triple again, but it is likely to offer gains for investors who buy now.
Learn more about investing in cutting-edge payment solutions from the experts at Financhill where many of the world’s smartest investors go for information.
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