Bottomline Technologies: A Wall Street Beater Delivering Consistency
Today I have an online payment and digital banking small-cap stock that is a pretty good example of a “growth at a reasonable price” investment.
Based in New Hampshire, Bottomline Technologies (NASDAQ:EPAY) isn’t exactly located in a hotbed of technological innovation, but the company—with a market cap of $1.5 billion—produces an application that is used by over 10,000 clients worldwide, from the United States to Europe to Asia.
At the core of Bottomline Technologies is its cloud-based application used by companies in high-transaction businesses to cope with online payments, invoicing, and digital banking.
The high potential for Bottomline Technologies stock lies in its business niche, which should have excellent tailwinds as the demand for online payments and digital banking continue to accelerate globally. The company is in a sweet spot, and I wouldn’t be surprised to see it eventually looking at accepting cryptocurrencies.
EPAY stock has easily outperformed the S&P 500 and NASDAQ, returning 44% over the past year, to a new high of more than $37.30 on January 23.
The Bottomline Technologies stock chart shows an upward trend supported by a bullish golden cross, rising relative strength, and rising moving average convergence/divergence (MACD).
Chart courtesy of StockCharts.com
The Fundamental Bull Case for EPAY Stock
Bottomline Technologies has been extremely consistent in delivering strong quarterly results.
Consider that EPAY has managed to beat the consensus earnings per share (EPS) forecasts in 10 of the past 13 quarters, dating back to the start of 2014, and in seven of the last nine quarters.
The ability to produce results supports the price appreciation, and I think there is much more to come.
As far as its fiscal results go (ending in June 2017), the company has reported sequential revenue growth in an impressive 11 consecutive years, to $349.4 million in FY17.
The positive trend is expected to hold, with revenues estimated to grow 7.3% to $374.9 million in FY18, and then another 9.5% to $410.4 million in FY19. (Source: “Bottomline Technologies (de), Inc. (EPAY),” Yahoo! Finance, last accessed January 25, 2018)
Bottomline Technologies is also profitable, driving gross margins and higher profits.
There have been multiple EPS revisions for FY18 and FY19 over the past 90 days. The high EPS estimate of $1.47 per diluted share for FY19 translates into a forward multiple of about 25.2 times, which isn’t that out of line for small-cap growth.
The price/earnings to growth (PEG) ratio of 1.7 suggests a reasonable valuation, given the stock price.
The online payment space is hot, and is expected to strengthen. While the price of EPAY stock has been at its high for the past few days, the valuation indicates that the stock could rise much higher from here and still be relatively cheap, versus some of the high-flying momentum stocks.
Even if Bottomline Technologies stock were to rally another 50%, the valuation wouldn’t look that out of place.