Get a Piece of Every Transaction with This Fast-Growing Credit Card Processor

It’s every dreamer’s get-rich-slow scheme. Figure out a way to take a small piece of lots of transactions that happen daily. Then sit back on the beach and let the money roll in.

I’m not sure how much time CAM Commerce Solutions (CADA) chief executive Geoffrey Knapp spends on the beach. But he seems to have figured out the first half of the equation.

His company spent years after starting up in the 1980s selling payment processing systems to retailers. That end of the business has been hit or miss lately.

But another side of the business is hot. It’s a software system retailers can incorporate into their payment systems that helps them in two ways. First, it allows them to get rid of that separate box you use to swipe your credit card. Instead, your card gets read by the store’s register.

Second, there’s now only one transaction – the register both reads your card and rings up your purchase in one shot. This means at the end of the day retailers don’t have to audit records of sales through two systems to be sure they all match up.

“With ours it is all one system,” says Knapp. “You eliminate all that extra equipment and all the auditing each day.” CAM Commerce takes a small piece of each transaction, sharing it sometimes with other vendors of payment systems if they were the ones who installed systems using CAM Commerce’s software.

Snapping it up

This might be a little more than you care to know about retail payment systems. But retailers themselves are snapping up X-Charge, as the system is called. In the September-ending quarter, X-Charge sales grew 78%.

CAM Commerce has other lines of business – like complete payment processing systems – so overall revenue isn’t moving up that fast. But the good news is that margins are higher on the X-Charge revenue, so as it grows, earnings move up a lot.

How much?

B. Riley & Co. analyst Justin Cable doesn’t cover the company. But he follows the sector so he has a model for CAM Commerce. He’s looking for overall revenue growth of 9.7% this year and 13.4% next year.

But because revenue should grow faster than costs, earnings per share could grow 75% this year and 57% next year. That means pro forma earnings per share could be 77 cents this year and $1.21 next year, compared to 44 cents last year. The company also has a forward annual dividend of 56 cents a share, for a dividend yield of 2.4%.

Despite this kind of prospective growth, CAM Commerce looks moderately cheap. If you strip out the company’s $5.47 per share in cash, the company trades for about 2.7 times sales, at $23.50 per share. Sage, a big UK software company, recently paid 5.1 times sales for Nashville, TN-based payment processor Verus Financial Management.

Insiders have purchased $2.6 million worth of stock since last April, and this is only a $65 million market cap company. So that’s huge.

About $2.1 million came from a beneficial owner (someone who owns more than 10% of the stock) who has close contacts with top management. Knapp has purchased $442,000 worth and now owns over 12% of the shares.

The bottom line: Insiders admittedly bought the stock much lower. Knapp’s highest purchase was at $17.50 and the beneficial owner purchased most of his stock under $15, but his highest purchase was $22.80. In short, the stock has been strong of late – probably in anticipation of good earnings news on Feb. 14 when CAM Commerce reports – so we are a little late to the story. But there is still probably significant upside ahead, and I’d expect the stock to be strong on quarterly earnings news. So I would buy right now.