Shares of payments companies outperformed the general stock-market indexes in September, and beat most of them in the third quarter and the year so far, investment firm Barrington Research reported Monday.
A group of 29 payments stocks posted a mean return of 2.74% in September, its ninth straight month of positive returns, Chicago-based Barrington said. That performance bested the Nasdaq with a 1.05% return; the S&P 500 Index, 1.93%, and the Dow Jones Industrial Average, 2.06%.
For the third quarter, the payments firms posted a mean return of 5.46%, below the Nasdaq at 5.79% but above the S&P 500 at 3.96% and the Dow at 4.93%. For 2017’s first nine months, the payments group posted a mean return of 30.36%, beating all of the indexes: the Nasdaq, 20.67%; the S&P 500, 12.53%, and the Dow, 13.36%.
Behind the strong performance are investors’ recognition of the “great business models” of some of the payment industry’s biggest players such as Visa Inc. and Mastercard Inc., Gary Prestopino, a managing director at Barrington, tells Digital Transactions News. These firms as well as processors such as Global Payments Inc. and PayPal Holdings Inc. generate significant recurring revenues, he notes.
“It’s hard to argue with these companies and their business model,” says Prestopino.
Top performers over 2017’s three full quarters include prepaid card provider Green Dot Corp., whose shares rose 110.5% as it executed a turnaround plan; merchant processor Square Inc., up 111.4% as it added lending and other services, grew merchant revenues, and now is seeking a Utah bank charter and Everi Holdings Inc., formerly Global Cash Access, a specialist in payment services for casinos that has improved its balance sheet and added services, up 249.8%.
Laggards year to date include ATM network owner and operator Cardtronics plc, whose shares fell 57.83%. Prestopino says Cardtronics suffered from investor concerns about consumers’ future use of cash as well as the uncertainties about surcharge fee generation in Australia, where it recently made a major acquisition. Four big Australian banks recently announced that they would end cash-withdrawal charges, Bloomberg reported.
Payment card manufacturer CPI Card Group Inc.’s shares have declined 71.57% since last Dec. 31 as revenues from the U.S. EMV chip card conversion have come in lower than expected.
Despite the strong fundamentals of many payments companies, Prestopino won’t predict how long processor stocks can continue to beat the market. “It’s almost scary,” he says. “Everything in 2008, 2009 got knocked down precipitously.”