Soaring Patient Affordability Growth Fuels Revenue But Shrinking Margins Loom

Key Takeaways

• Rapid growth in patient affordability programs and onboarding major pharmaceutical accounts likely to significantly boost revenue.
  
• Strategic expansion and investments in plasma centers and IT aim to improve long-term revenue and efficiency.
  
• External challenges and operational pressures could impact revenue stability and profitability due to increased expenses and competitive risks in key business segments.

Catalysts

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

• The rapid growth in the patient affordability segment is a major catalyst, with a 219% year-over-year increase and expectations for continued program growth, potentially boosting overall revenue significantly.
  
• The onboarding of major pharmaceutical companies, such as the mentioned cornerstone account, is expected to provide sustained revenue growth as these new engagements scale up, directly impacting future revenue streams.
  
• Expanding the number of patient affordability programs, reinforced by a strong pipeline, is likely to enhance revenue as the portfolio diversifies across pharmacy-based retail, specialty, and medical benefits programs.
  
• The planned increase in the number of plasma centers despite current challenges suggests a strategic focus on maintaining and potentially improving revenue from the plasma business in the long run.
  
• Ongoing investments in IT and personnel to support the high-growth patient affordability business could lead to improved operational efficiency and margins over time, impacting net margins positively.

Paysign Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Paysign's revenue will grow by 12.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.4% today to 3.2% in 3 years time.
• Analysts expect earnings to reach $2.4 million (and earnings per share of $0.05) by about November 2027, down from $7.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 161.6x on those 2027 earnings, up from 26.3x today. This future PE is greater than the current PE for the US Diversified Financial industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 2.75% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.56%, as per the Simply Wall St company report.

Paysign Future Earnings Per Share Growth

Risks

• External challenges like hurricanes and staffing shortages have impacted the plasma donor compensation business, potentially affecting revenue and growth stability in this segment.
  
• The company's increasing operating expenses, particularly significant investments in IT and personnel, could pressure net margins if revenue growth does not keep pace.
  
• There are legal expenses related to the settlement of class action and derivative lawsuits, indicating potential financial liabilities that can impact net income and cash flow.
  
• The plasma business, a significant revenue driver, faces risks from competitive labor markets, which have caused staffing shortages affecting per center revenue, potentially impacting earnings.
  
• Rapid expansion in the patient affordability business involves transition programs from competitors, which can involve execution risk and reliance on maintaining competitive advantage, impacting future profitability.

Valuation

• The analysts have a consensus price target of $6.81 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 $76.4 million, earnings will come to $2.4 million, and it would be trading on a PE ratio of 161.6x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of $3.83, the analyst's price target of $6.81 is 43.8% 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.