Corporate America Loves This Firm…Do We?
Wall Street Daily | Aug 07, 2014 05:55AM ET
Back in 2008, Best Buy (NYSE:BBY) loved me. Like a kid in a candy store, I couldn’t stop hitting the place for tech gadgets.
I bought my Sony PlayStation 3 there; I bought the Nintendo Wii there; I went back for countless games. But for all my loyalty and hundreds of dollars spent, I had nothing to show for it. I was supposed to get Reward Zone points… but I have no idea what happened to them. And that’s the problem here…
For all the strides made in online technology, keeping track of the points and rewards you receive from various loyalty programs can be like searching for Atlantis. Fortunately, this company is solving the issue. It’s the only one providing such a broad service, too. And as its massive client base, revenue growth, and future potential show, it’s poised for a big run higher.
How big? A 170% gain is forecast…
h2 Got Points? Check ‘Em Here/h2However, I’m not just going to blindly steer you towards a technology investment without giving it a thorough examination first. My C.H.A.O.S. tech stock screener will make absolutely sure we’re on the right track. If you’re unfamiliar, go here to see how C.H.A.O.S. works .
So let’s dig in…
Through its proprietary web platform, Toronto-based Points International (NASDAQ:PCOM) is a “one-stop shop” for consumers to track their loyalty rewards from over 100 companies – including credit card providers, airlines, hotels, and retailers. Whether it’s points, cash, miles, or gifts, the Points ecosystem allows customers to see all their balances in one convenient location.
From there, you can:
- Redeem rewards.
- Move points or miles between various programs by exchanging them (for free) on Points.com.
- Convert balances into PayPal cash credit or gift cards.
- Buy points or miles to top up a certain account or hit a certain level.
- Trade points with other members. Yep… just like trading baseball cards, you can swap points, miles, and rewards with other users. You can also give points, miles, or rewards as gifts to family and friends.
Here’s how Points stacks up investment-wise…
~Cash
Let’s start with Points International’s free cash flow (FCF).
FCF is a major valuation metric, as it shows a company’s ability to pay down debt, grow its business, increase its savings, and – most importantly – increase shareholder value.
Since Points doesn’t have any debt, it can focus FCF on the other three areas. And as you can see, Points has consistently grown its FCF over the years at a very impressive rate…
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In addition, Points has controlled its expenditures. That’s the beauty of its industry – it doesn’t require much spending to keep machinery and technology up to date.
In light of Points’ outstanding FCF growth, I also ran it through my discounted cash flow (DCF) projection. To refresh your memory, DCF is a way of valuing a company using future cash flow estimates against the current share price to see how much bang you get for your investment bucks.
Based on this model, Points is on pace for 100%-plus growth in the coming years. But free cash flow isn’t the only standout area…
From 2009 through 2013, Points grew its revenue from $80 million to $202 million, all the way to the current trailing 12-month figure of $224 million. That’s a 180% leap. As a result, gross profit has grown, too.
Over the same timeframe, Points saw its gross profit surge 105% – from $17 million to $35 million. And, while its net profit lags in terms of such consistent growth, the company has always remained in the black. In fact, the last negative earnings report was back in Q1 2011.
While that’s impressive, Points loses a couple of marks for its low margins, plus having fallen short of analysts’ estimates (but still positive) in eight of the last 14 reporting periods.
C.H.A.O.S. Meter: 18/20
~High Impact
As I said, Points is the only platform that offers such transparency and engagement for customers in reward programs.
So users can not only easily see the various points they’ve accumulated, but because Points treats loyalty rewards like currency, customers have more flexibility over how they use them.
As the revenue and cash figures above show, this kind of format is popular with businesses and consumers alike, making the company’s impact undeniable.
C.H.A.O.S. Meter: 14/20
~Acceleration
The biggest catalysts for Points are strong earnings reports and analyst upgrades.
Indeed, because of its continued growth and profitability, analysts have raised their price targets, with the general consensus falling around $50 per share. That’s up 177% from the current share price.
And because Points’ growth is directly tied to its partnership deals, you can expect any new contract announcements to bump shares higher, as that will further validate analysts’ projections.
And even if it misses earnings estimates (as it did in Q1 2014, by one penny), it’s still profitable and raised its full-year revenue guidance by 25% to 40%.
With positive growth accelerants ahead for Points, as well as a very attractive valuation, there’s far more upside potential than risk at current levels.
C.H.A.O.S. Meter: 16/20
~Orders
Last year was a watershed for Points, as the company added major loyalty programs to an already-impressive list that includes airlines like American Airlines (MX:AAL), Delta Air Lines (NYSE:DAL), United Continental (NYSE:UAL), JetBlue (NASDAQ:JBLU), U.S. Airways, Virgin, Air France-KLM (OTC: AFLYY), Japan Airlines, and Qantas.
Points also boasts major brands like Hyatt (NYSE:H), Starwood Hotels (NYSE:HOT), Best Western, American Express (NYSE:AXP), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), Diners Club, Coca-Cola (NYSE:KO), Starbucks (NASDAQ:SBUX), Amtrak, CVS (NYSE:CVS), Office Depot (NYSE:ODP), and Sears (NASDAQ:SHLD).
And added to the list more recently: Hilton Worldwide (NYSE:HLT), MasterCard (NYSE:MA), and Spirit Airlines (NASDAQ:SAVE).
But most notable was Points’ introduction of Southwest Airlines’ (NYSE:LUV) Rapid Rewards program to its Buy, Gift, and Transfer offerings. Notable because Southwest is one of the largest U.S. airlines in terms of passenger volume. A total of 100 million passengers fly Southwest each year, with half of them part of Rapid Rewards. As such, it’s a significant addition to Points’ loyalty network.
Points’ revenue comes from the fees that Points charges its loyalty partners for hosting their rewards programs on its platform. It also books transactional revenue that’s realized when Points facilitates retailing, or transferring loyalty currency.
Orders are strong, and continue to grow each year. Plus, Points recently launched 15 new products, which should help maintain its pace.
C.H.A.O.S. Meter: 17/20
~Scalability
Points’ biggest driver is its ability to continue adding new loyalty program partners to its stable. That’s crucial, given that most of its revenue comes from users’ transaction activity.
The company is also looking to expand internationally, particularly in China, where the loyalty market is growing rapidly.
Last year, it started aggressive geographic expansion, with strong progress in both Asia and Europe by signing Melia Hotels and Finnair. It also added China Rewards, a company with an extensive network of merchants, including hotels, restaurants, car rentals, airlines, shopping malls, grocers, health and beauty, and entertainment.
While I don’t foresee the loyalty program market growing to mega-trend levels, Points is in a strong position to take advantage, given the very low barriers to entry, and its lack of competition.
C.H.A.O.S. Meter: 18/20
OVERALL C.H.A.O.S. RANKING: 83/100
Final Verdict: To be honest, Points International isn’t going to revolutionize the world with its technology. But its financial position in relation to its current market value is very compelling – especially with projected growth ranging between 100% on the conservative side and 200% on the aggressive side in the coming years.
The projected 25% to 40% jump in revenue for this year, based on its huge client growth, should be the launchpad for that journey to 100%.
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