Technical chart patterns don't always play out as predicted but in the case of i3 Verticals (NASDAQ:IIIV) one particular pattern has indeed gone as planned. Back around Thanksgiving, a megaphone bottom pattern emerged when the stock was trading at $27.65. This pointed to a potential run to $34.50 at the midpoint.
Fast forward to this week and i3 Verticals has entered the projected range of the bullish pattern. And poetically, it did so on the day when the upstart technology company was preparing to announce its latest quarterly performance.
Based on the latest results and i3 Verticals' growth opportunities, it won't be long before this stock eclipses its $37.85 all-time high from a year ago.
What Does i3 Verticals Do?
Nashville-based i3 Verticals develops software that helps small-to-mid sized businesses run smoother and more effectively. Its solutions are embedded with payments features and various services that support both traditional and e-commerce companies. Its broad suite of software solutions process more than $14 billion in payments annually.
Part of what makes i3 Verticals a standout in the payments software space is its relevancy to a large group of industries. From retail and non-profit to hospitality and property management, i3's offerings cover a broad scope of customers that also includes health care organizations and educational institutions. It’s the exposure to these verticals that is behind the company name and its diverse growth opportunities.
Now, given the surging global demand for payments enabled software solutions that make organizations more productive and profitable, i3 Verticals competes in an increasingly crowded space. But where it differs is its ability to helps customers manage payments data so they can focus on their core competencies. This is the value proposition of i3 Verticals solutions.
How did i3 Verticals Perform in Q1?
For the first quarter of fiscal 2021 i3Verticals posted a 5% increase in revenue to $43.3 million. Excluding acquisitions, top line growth was 8%. After recording a net loss of a penny per share last year, the company recorded a $0.13 loss for the period ended December 31st as SG&A expenses were up 29%.
Restrictions related to COVID-19 put back in place during the holiday quarter had a negative impact on payment volume and i3's ability to develop new business. Payment volume, the value of Visa, Mastercard, and ACH transactions processed by i3 Verticals clients, slipped 1% to $3.80 billion.
The closely watched integrated payments metric, which includes transactions that take place on i3 software or technology that's embedded in client software, comprised 56% of payment volume during the quarter. Integrated payment volume is an important metric because it tends to be associated with higher growth transactions that have more staying power than regular acquiring transactions.
For the full year, management offered revenue guidance of $206 million at the midpoint and said it sees adjusted earnings per share (EPS) in the $0.93 to $1.06 range.
What Makes i3 Verticals Stock a Buy?
Since its June 2018 IPO, i3 Verticals' shares have had an up and down ride but have ultimately moved higher. The stock remains reasonably priced at approximately 32x forward earnings considering many online software providers trade at a 100x multiple or higher.
But aside from the fair if not cheap price tag, i3 Verticals diverse customer base of both growth-oriented and defensive sector customers is appealing. Without a reliance on any one industry or any one large customer, its revenue streams are relatively smooth and predictable.
And despite the near-term setback tied to the pandemic, payment volumes are expected to recover in 2021. As government stimulus and vaccine distribution progress spur a potential economic rebound, management sees higher transaction volume and better results ahead. Students returning to in-person learning stands to benefit the performance of i3's education segment.
In addition to organic growth opportunities in existing and new verticals, i3 Verticals may be able to snatch up smaller, complimentary firms to drive inorganic growth.
Last week the company announced the completion of its $87.7 million takeover of Business Information Systems (BIS), a neighboring software and electronic payments solution provider. The acquisition, i3's largest ever, is expected to bolster its position in the public sector which has grown to account for almost half of revenue. This includes software solutions tailored to courts and other state and local government offices.
The Street has a predominantly positive view on i3 Verticals with seven of eight analysts calling it a 'buy'. Last month Raymond James reiterated its buy rating and gave the stock a Street-high $40 price target.
The insider trading activity is also a positive. Over the last two months a pair of corporate insiders combined to purchase more than a half-million dollars of the small-cap stock.
Given the multifaceted growth prospects in both the private and public sectors, expect i3 Verticals stock to continue going up over the next few years.
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7 Food Stocks That Are Leading Through Innovation
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