Why CPI Card Group Stock Popped 12% Today

CPI Card Group (NASDAQ: PMTS) stock rose 12.2% through 12:30 p.m. ET Tuesday despite reporting only mixed results in its Q3 earnings report this morning.

On the plus side, the manufacturer of credit and debit cards for issuance by banks beat analyst revenue expectations, reporting $124.8 million in sales where $117.1 million had been expected. At the same time, CPI's profits were only $0.11 per share, far less than the predicted $0.51.

CPI Q3 earnings

Sales surged 18% year over year, with CPI reporting strong sales of both debit and credit cards, and prepaid cards as well. Earnings, however, tumbled 67% as the company incurred $8.8 million in costs to refinance its debt.

As CPI explained, it redeemed its $268 million worth of senior secured notes (due in 2026 and paying 8.6% interest), and replaced them with $285 million in senior secured notes (due in 2029) paying 10% interest. The company also entered into a $75 million revolving credit facility giving it additional access to capital as needed.

The net effect of these moves will be to increase interest costs for CPI going forward -- but also to push out the due date for its debt by three years. Additionally, CPI noted that its majority stockholder sold 1.4 million shares of stock onto the public market, reducing its stake from 56% to 43% of the company, such that CPI no longer has a controlling shareholder.

Is CPI Card stock a buy?

Turning to guidance, CPI said sales will grow in the mid- to high single digits this year (i.e., faster than previously expected), and with higher-than-expected earnings before interest, taxes, depreciation, and amortization (EBITDA) as well. Free cash flow will be "slightly below the 2023 level," versus a prior prediction of nearly a 50% reduction -- also a big improvement.

Roughly speaking, investors might therefore expect free cash flow of perhaps $25 million this year -- a guess that, if correct, could value the stock at as little as 11 times FCF. Not bad, in other words, for a company now growing sales at 18%.

Should you invest $1,000 in Cpi Card Group right now?

Before you buy stock in Cpi Card Group, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cpi Card Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $833,729!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of November 4, 2024

Rich Smith has positions in Cpi Card Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.