Intelligent Systems Stock: Fintech Play Set to Break Out by 50%

technology stockIntelligent Systems Stock: A Value Fintech Play

Fintech payment solution companies have largely been sizzling, but there are some that failed to benefit from the sector gains. Take the case of small-cap Intelligent Systems Corporation (NYSEAMERICAN:INS), an investor and developer of technology companies. Intelligent Systems stock has been on a rollercoaster ride.

INS stock traded as high as $56.24 in August 2019 prior to tanking to $23.26 during the March low. Intelligent Systems stock has since rallied 59%, but it remains down 6.76% this year and just over 15% over the past year.

The thing that makes Intelligent Systems intriguing is the company’s focus on the fintech segment. Its core asset at this time is its CoreCard Software, Inc. unit. CoreCard offers a payment platform used for processing services, along with licensed software solutions that allow companies to process their own transactions.

The chart of Intelligent Systems stock shows the rally from the March lows to above its 50-day moving average.

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We are potentially seeing a bullish rising wedge in the works, with a breakout on the horizon to above $40.00 and to upper resistance around $50.00.

Chart courtesy of StockCharts.com

The rise in relative strength and moving average convergence/divergence (MACD) helps to support a possible breakout,

Strong Fundamentals Support Bull Case for INS Stock

Revenues grew by double and triple digits during the last four years, with impressive growth in 2018 and a record $34.3 million of revenue in 2019.

The big 67.2% decline in 2015 was due to the company’s sale of its ChemFree Corporation unit, which it did so it could focus on the fintech space.

Fiscal Year Revenue (Millions) Growth
2015 $4.8 -67.20%
2016 $8.2 71.00%
2017 $9.2 12.20%
2018 $20.1 118.90%
2019 $34.3 70.70%

(Source: “Intelligent Systems Corporation,” MarketWatch, last accessed September 24, 2020.)

While the pandemic impact poses uncertainties, current estimates call for Intelligent Systems Corporation to grow revenues by five percent to $36.0 million this year followed by a 34.3% increase to $48.4 million in 2021. (Source: “Intelligent Systems Corporation (INS),” Yahoo! Finance, last accessed September 24, 2020.)

More normalized growth rates are not unusual as a company begins to rapidly grow its revenue base.

INS managed to turn positive earnings before interest, taxes, depreciation, and amortization (EBITDA), hitting a record $14.4 million in 2019.

Fiscal Year EBITDA Growth
2015 -$2.6 million N/A
2016 -$439,000 83.20%
2017 -$1.2 million 166.90%
2018 $6.8 million 676.50%
2019 $14.4 million 113.10%

(Source: MarketWatch, op. cit.)

At the same time, Intelligent Systems became profitable on a generally accepted accounting principles (GAAP) basis for the last three years, including an impressive $1.24 per diluted share in 2019.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.09 -778.00%
2016 -$0.13 -45.00%
2017 -$0.04 133.10%
2018 $0.71 1567.50%
2019 $1.24 75.30%

(Source: MarketWatch, op. cit.)

On an adjusted basis. Intelligent Systems is estimated to see its profits fall to $1.11 per diluted share this year from $1.22 per diluted share in 2019. While lower, these estimates are still encouraging. A look at 2021 shows Intelligent Systems ramping up profits to $1.89 per diluted share. (Source: Yahoo! Finance, op. cit.)

INS also generated positive free cash flow (FCF) in 2018 and 2019. For a small company starting out, this is impressive.

Fiscal Year FCF (Millions) Growth
2015 -$2.3 N/A
2016 -$1.6 32.90%
2017 -$3.4 -114.10%
2018 $5.8 272.30%
2019 $8.9 53.80%

(Source:MarketWatch, op. cit.)

Analyst Take

The strong tailwinds in the digital payment space bodes well for INS stock.

Insiders also added 302,920 shares of Intelligent Systems stock during the last six months. (Source: Yahoo! Finance, op. cit.)

Intelligent Systems trades at an attractive 19.57 times its consensus 2021 EPS. If INS can deliver on the high end, and we assign a higher multiple, Intelligent Systems stock could realistically rise by 50%.