Rapid Growth In Patient Affordability Market Fuels Optimism Despite Looming Margin Pressures

Key Takeaways

• The expansion into the patient affordability segment and significant client growth, like AstraZeneca, indicates a promising area for revenue and earnings increases.
  
• Diversified growth strategies, including strong performance in the plasma donor compensation business, suggest stable revenue streams and potential for improved net margins.
  
• Paysign's success hinges on patient affordability programs, with risks from market shifts, healthcare policy changes, and over-reliance on major clients like AstraZeneca.

Catalysts

Provides prepaid card programs, comprehensive patient affordability offerings, digital banking services, and integrated payment processing services for businesses, consumers, and government institutions.

• The remarkable year-over-year and sequential growth in revenues, especially a robust 30% increase compared to the previous year, suggests a strong upward trajectory in business operations potentially boosting future earnings.
  
• The exceptional 267% increase in revenue from the patient affordability segment indicates a high growth area that is likely to contribute significantly to both top-line growth and margin expansion in the future, enhancing net income.
  
• The expansion of the patient affordability programs from 61 active programs and the addition of notable clients like AstraZeneca, where program numbers increased from 4 to 12, highlights a growing market presence and client trust, likely to boost future revenues and earnings through new and expanded contracts.
  
• A robust sales pipeline filled with promising opportunities, slated for launch later this year and into 2025, provides a clear path for continued revenue growth and operational scaling, which could improve net margins through economies of scale.
  
• Strong performance in the plasma donor compensation business, with a 13% revenue increase and the addition of new plasma centers, underscores a diversified growth strategy that supports stable revenue streams, contributing to overall financial health and sustenance of higher net margins.

Assumptions

• Analysts are assuming Paysign's revenue will grow by 13.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.4% today to 2.3% in 3 years time.
• Analysts expect earnings to reach $1.8 million (and earnings per share of $0.03) by about September 2027, down from $7.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 243.7x on those 2027 earnings, up from 28.5x today. This future PE is greater than the current PE for the US Diversified Financial industry at 15.7x.
• Analysts expect the number of shares outstanding to grow by 0.73% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.55%, as per the Simply Wall St company report.

Risks

• Heavy reliance on the rapid growth and significant contributions of the patient affordability business could expose Paysign to risks if market dynamics shift or if competition intensifies, potentially impacting future revenues.
  
• Investments in IT and personnel to support business growth are increasing operating expenses; if the revenue growth from new programs does not meet expectations, net margins could be adversely affected.
  
• While expanding its client base, any failure to maintain or expand existing major client relationships, such as with AstraZeneca, could lead to a significant loss of revenue and negatively affect earnings.
  
• The business model's reliance on continued and escalating healthcare expenditures, particularly within the pharmaceutical sector, subjects Paysign to systemic risks associated with healthcare policy changes or payer reimbursement challenges, which could impact revenue growth.
  
• The patient affordability market operates primarily within the U.S. healthcare system, limiting geographic diversification and exposing Paysign to risks associated with potential U.S. healthcare reform or regulatory changes that could affect earnings.

Valuation

• The analysts have a consensus price target of $6.75 for Paysign based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.25, and the most bearish reporting a price target of just $6.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $79.3 million, earnings will come to $1.8 million, and it would be trading on a PE ratio of 243.7x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $4.15, the analyst's price target of $6.75 is 38.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.