Should you buy global payments inc stock?
What a wily car salesman 13 years ago taught me about Global Payments Inc. today
By Tim Sunderland
It's July 2007 and I'm stood outside the archway belonging to Harrington's 2nd hand car dealership in Fulham. Up until now, I've been posted in the car washing archway at the end of the alley, hidden out of sight from on-viewing car buyers. But this week is different. This week is special.
This week, one of the co-owners is away in France and I've been given the opportunity to stick on my navy blue cords and white shirt and kick car tires with prospective customers who dare engage with my sales patter.
Armed with a dog-eared copy of Lawrence Donegan's 'California Dreaming' as my sales training manual and youthful effervescence, I was ready!
So, with great aplomb, I stood there on the forecourt awaiting my first big juicy commission (capped to £100.).
Alas, the days rolled by on what must have been the hottest week of the year. Suddenly, dark blue corduroys didn't seem like such a great idea and my working days were spent pushing my glasses back up the bridge of my nose.
Before I knew it, Thursday had arrived and I hadn't secured a single test drive let alone speak to anyone other than the postman -sadly, my ambitions of being a superstar car salesman were drawing to an undramatic close.
Come Friday, the other co-owner (Patrick) came out of his office to console my dampened spirits. 'You'll be standing out here for a very very long time if you expect to sell a car to a passer-by... The real enquiries come through the phone".
"Jheeze" I thought, thanks for telling me now after I've half melted into the concrete!
Nonetheless, it was then that I learned a valuable lesson at this quasi school of hard knocks.
Patrick's expert insight came as tremendous relief in fact. Throughout my thoroughly quiet week, I couldn't help but wonder if I was witnessing the effects of an economic slow down of which I had heard so much about on the 6 o'clock news every evening.
Not only was I an awful salesman, was my car washing gig in jeopardy? I relayed my concerns to Patrick to which he chuckled and simply responded with, 'It doesn't matter if the economy has a tumble, as long as the market keeps moving in one direction or another and people keep buying and selling their cars, we'll be alright.'.
He had a point, their earnings were derived from the number of transactions, not the value of the cars themselves. Which brings me nicely to Global Payments Inc (NYSE:GPN).
Global Payments Inc. provides payment technology to over 30 countries and monetize this through transnational fees attached to each card payment they facilitate. So it's probably worth delving into the data a bit and looking at M2 (global money supply) and the velocity of M2. Simply put, M2 velocity is the number of times $1 is spent to buy goods and services in a unit of time. If velocity is increasing, then more transactions are occurring. GPN's share price is up over 200% in the last 5 years, so you'd expect M2 velocity to being running hot, too... Oddly this isn't the case, quite the opposite in fact, we'd have to go back over 60 years to see M2 velocity this low. So why has GPN's share price performed so well?
It's worth noting the US stock market has been on an absolute tear since Trump came into power, but we should also pay attention to the change in how we spend our money. Looking at data from the UK, daily card transactions have increased from 17.7m to 39.2m from 2006 to 2016 and this figure is set to increase to 60m by 2026. This projection is based on the previous growth trajectory and doesn't take into consideration the global pandemic we're currently experiencing. It comes as no surprise that GPN are forecasting a 39.1% increase in their earnings per share (12 months rolling). Looming global recession or not, Patrick's earlier prophecy still holds merit today , as long card transactions continue to trend up, I think they'll be alright.
Daily Card Transactions. Source: statista.com
Will the share price double, quadruple or even worse go to zero? I don't know is the honest answer. Nobody really does.
I can't predict if there will be more buyers than sellers over the next 12 months, but I'm encouraged by the underlying numbers and the analyst ratings on the stock (average price target $208.97). Personally speaking, I look for growth plays without an obscene valuation attached to it (PEG Ratio of 0.8 in this case). Some debt for growth is OK, but I don't like to see a crippling amount. I certainly don't like to see total debt bigger than the entire market cap of the company (that normally acts as a red rag to a bull for hedge funds to start shorting). And most importantly, I like to swim with the tide rather than bottom pick 'bargains' in a dying sector. These basic principles have served me well over the years and all stand to be true with Global Payments Inc.
Important information. The value of shares can fall as well as rise. Dividend payments can fall as well as rise. Any information relating to the past performance of an investment is not a guide to future performance. Share prices may go down as well as up and you may not get back the original amount invested. You should not buy shares with money you cannot afford to lose.
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