This Low-Priced Stock Deserves a Look
The tech industry is not short of soaring tickers. However, as history has shown a lot of instances, large swings may arrive in the two directions. There’s always risk associated with the latest technician stocks, particularly in case you purchase them later they’ve taken through the roof.
There’s also an argument that technology stocks have swollen valuations. A technology firm may create hardly any present earnings —and sometimes, no earnings at all—they may encourage a market capitalization in the billions of bucks.
I understand, investors are forward-looking. But if you don’t like danger, it’s a fantastic idea to also have a look at businesses with not-so-bloated valuations.
Bearing this at mind, let’s check out GreenSky LLC (NASDAQ:GSKY).
Headquartered in Atlanta, GreenSky includes a proprietary platform that provides cellular, online, and in-store point-of-sale funding. The platform helps drive value for three classes: retailers, customers, and even banks.
For example, if a customer wishes to make a huge purchase for a house improvement project, then they are able to make an application to get a loan via GreenSky’s platform in the point of sale and receive acceptance leads to real time. The loan is subsequently matched to among GreenSky’s bank partners.
This business is quite lucrative. Merchants have to pay the company a transaction fee every time they facilitate a transaction using GreenSky’s platform. In the first quarter of 2020, the average transaction fee was 6.55% of the transaction volume. (Source: “Morgan Stanley Virtual US Financial Conference,” GreenSky LLC, June 9, 2020.)
While the fee is not insubstantial, merchants are willing to pay it because GreenSky’s platform can help them close high-dollar deals. As of March 31, nearly 18,000 home improvement merchants and elective healthcare providers were using the company’s platform.
Transaction fees are currently the biggest source of revenue for the company (74% in the first quarter). Other than charging transaction fees from merchants, GreenSky also makes money by servicing loans for its bank partners. Servicing and other fees accounted for the remaining 26% of the company’s total revenue in the first quarter.
While GSKY stock is not exactly a well-known ticker, the financial technology (fintech) company has delivered some very impressive growth rates. Consider that, in 2016, GreenSky LLC generated $264.0 million in total revenue. By 2019, the company’s top-line number had more than doubled to $530.0 million.
Despite the outbreak of COVID-19, GreenSky’s financial growth continued in the first quarter of this year.
For the quarter, the company generated $121.2 million of revenue, representing a 17% increase year-over-year. This was driven by a seven percent increase in transaction fees and a 59% increase in servicing fees and other revenue. (Source: “GreenSky, Inc. Reports First Quarter 2020 Financial Results,” GreenSky LLC, May 11, 2020.)
Notably, transaction volume on the company’s technology platform rose 10% year-over-year to $1) 4 billion for the quarter.
Ultimately, because the COVID-19 pandemic began disrupting company activity in mid-March, second-quarter results could see a much bigger impact for most companies.
However, the neat thing here is that, trading at about $5.50 apiece, GreenSky LLC has a market capitalization of $997.0 million, which is less than twice the firm’s last-reported annual revenue.
In the bloated tech world, it’s not each day that you see a fast-growing business with such a low price-to-sales ratio. This kind of valuation not only creates a margin of safety, but could also lead to material upside for GSKY stock if your organization continues to deliver solid growth numbers.