On Thursday, small cap payment processing stock Calpian Inc (OTC: CLPI) surged 14.57% to $2.28 while its peer Moneygram International (NYSE: MGI) rose 8.57% on Wednesday and peer Net 1 UEPS Technologies (NASDAQ: UEPS) is rising 1% in pre-market trading after reporting earnings. However and if you are an investor or trader who is late to the table, which of these small cap stocks should you be putting your money into right now?
Why Did Calpian Inc and Moneygram International Rise?
In case you aren’t familiar with Calpian Inc, it works as an intermediary between large processors and merchants to facilitate payment for goods and services at the retail point-of-sale while its Indian subsidiary offers Money-on-Mobile - a pre-paid mobile payment solution to more than 122,340 Indian retail locations. Earlier in the week, Calpian Inc announced that the number of locations supporting its Money-on-Mobile service had increased from 118,000 on December 31, 2012 to more than 122,340 retail locations at the end of January while access to the service by unique phone numbers rose from 32.5 million to approximately 35.8 million. In addition, processed transaction volume rose 16 million INR to 636.7 million INR in January or approximately $11.9 million.
Meanwhile, Moneygram International, which offers money transfer services worldwide and bill payment services in the United States and Canada, had a 10% revenue increase to to $354.4 million thanks to an increase in transfers from the US to Mexico along with a big net income jump from $3.1 million to $20.2 million in part because the previous year’s results had been impacted by debt reduction costs. For the whole year, Moneygram International reported a 7% revenue rise to $1.34 billion and a net loss of $49.3 million verses $438.8 million. The company also made efforts last year to settle and move beyond government accusations of looking the other way at fraud fraud through money-transfer scams from 2003 to 2009.
Why is Net 1 UEPS Technologies Rising in Pre-Trading?
South Africa based Net 1 UEPS Technologies, which has developed a smart card-based alternative payment system for unbanked/under-banked populations and for mobile transaction channels, released earnings after the market closed yesterday with a conference call scheduled for this morning before the market opens. Specifically, Net 1 UEPS Technologies reported a 21% revenue rise to $111,442,000 in dollar terms but net income fell 90% to $2,629,000 (Apparently, revenues are in-line with Wall Street expectations but there was a miss on EPS).
Three factors were cited in the press release for the big fall in earnings:
- Unfavorable impact from the strengthening of the US dollar against the South African Rand.
- Implementation costs for the South African Social Security Agency (SASSA) contract (e.g. staff costs etc.).
- A change in South African tax law.
The press release noted that Net 1 UEPS Tech has enrolled 12 million citizens by the end of January as part of its SASSA implementation with the bulk of enrollment set to end by the end of March.
However, the company is also facing DOJ and SEC investigations into bribery allegations in order to get the SASSA contract. The Chairman of Net 1 UEPS Tech also stated in the press release that these investigations have had “some adverse impact from the damage caused to our reputation, including our ability to execute certain aspects of our strategic plan.”
Which Stock is the Best Bet for Investors?
Moneygram International is down 14.7% over the past year and down 68.9% over the past five years plus it has a forward P/E of 10.77 while Net 1 UEPS Technologies is down 46.4% over the past year and down 79.9% over the past five years plus it has a trailing P/E of 8.51 and a forward P/E of 4.07.
Meanwhile, Calpian Inc has only effectively been trading actively since September.
The Bottom Line. Given the uncertainty surrounding the DOJ and SEC investigations, conservative investors might want to avoid Net 1 UEPS Technologies for now, but it could pay off for those with a strong tolerance for risk. Otherwise, up and coming Calpian Inc and Moneygram International (now that it has largely moved past its troubles) could be interesting long-term bets.