Processor Stocks Posted Negative Returns in September and the Third Quarter

Investors in payment stocks experienced something in September they don’t have to suffer through very often—two straight months of negative returns.

A basket of 27 transaction-processor stocks tracked by Chicago-based Barrington Research Associates Inc. posted a negative mean return of 3.89% in September, considerably worse than three major stock-market indexes. The Dow Jones Industrial Average rose 1.95% last month, with the Standard & Poor’s 500 Index not far behind at 1.73%. The Nasdaq Composite Index eked out a 0.46% gain.

Processor stocks slipped in August, too, which with September’s loss pulled their third-quarter mean return down to a negative 2.53%. The broader market did much better, with the S&P 500 and Dow up 1.2% and 1.19%, respectively. The Nasdaq posted a 0.09% decline. 

Why the recent payment-stock declines? “There were some specific stocks that affected the quarter in a big way,” says Barrington Research managing director Gary Prestopino.

The third quarter’s biggest losers were prepaid card and banking services provider Green Dot Corp., which posted a negative 48.35% return; Usio Inc. (formerly Payment Data Systems), down 41.91%, and i3 Verticals Inc., down 31.68%. Square Inc., often a high-flyer, saw its shares sag 14.59%.

Broader market trends are affecting payment firms, too, especially in light of the technology-heavy Nasdaq’s weak recent performance. “The other thing that’s going on is the tech stocks are getting sold off in a big way, and these [payment companies] are quasi-tech stocks,” says Prestopino.

Payment firms still did well through the year’s first nine months, with the processor basket posting a mean return of 31.52% compared with mean returns of 20.56% for the Nasdaq, 18.74% for the S&P 500, and 15.39% for the Dow. “The returns for the nine months are double the indexes,” says Prestopino. He attributes the strong longer-term performance to attributes such as steady recurring revenues that investors like.

The top third-quarter gainer among the payments companies was long-suffering wire-transfer provider MoneyGram International Inc., which has announced a number of partnerships in an attempt at a turnaround. MoneyGram led the pack by far, posting a quarterly gain of 61.13%. In second place was NIC Inc., up 28.74%.

Shares of three payments stalwarts no longer trade as a result of recent processor mergers. But First Data Corp. gained 86.87% from the beginning of the year until it was acquired by Fiserv Inc. in late July. Similarly, Worldpay Inc. rose 76.63% before its buyout, also in late July, by Fidelity National Information Services Inc. (FIS), and Total System Services Inc. (TSYS) rose 63.94% before being acquired by Global Payments Inc. two weeks ago.