Digital Payments Will Erode Traditional Card Revenues Globally

Key Takeaways

• Accelerating digital payments and tokenization trends threaten long-term demand for CompoSecure's physical card offerings and sustained revenue growth.
  
• Rising sustainability regulations and intense competition may increase costs, compress margins, and heighten vulnerability to client or market shifts.
  
• Growing market penetration, operational efficiency gains, strategic partnerships, digital diversification, and disciplined acquisition strategy position CompoSecure for sustained growth and margin expansion.

Catalysts

Manufactures and designs metal, composite, and proprietary financial transaction cards in the United States and internationally.

• The increasing global adoption of mobile and digital payment methods continues to erode the need for physical payment cards, threatening to contract CompoSecure's core addressable market and putting long-term revenue at risk even as the company celebrates near-term growth.
  
• Regulatory and environmental pressures targeting the sustainability of plastic and metal cards are rising globally, which could drive up compliance costs or stifle demand for CompoSecure's premium products, compressing net margins in future periods.
  
• The payment industry's growing reliance on tokenization and software-based payment credentials reduces the relevance of physical cards, exposing CompoSecure to significant long-term demand headwinds and flat or declining revenue as issuers and consumers migrate to digital-first solutions.
  
• An overconcentration on premium metal card programs leaves CompoSecure exposed to major client losses or pricing resets if large banks or fintechs pivot to more sustainable or fully digital alternatives, which could result in sudden and material declines in top-line revenue.
  
• Intensifying global competition, especially from emerging low-cost and technology-led card manufacturers, may drive commoditization in card issuance, placing ongoing pressure on pricing and ultimately eroding CompoSecure's gross margin and earnings despite current scale and operational efficiency initiatives.

CompoSecure Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on CompoSecure compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming CompoSecure's revenue will grow by 31.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -28.2% today to 67.5% in 3 years time.
• The bearish analysts expect earnings to reach $413.2 million (and earnings per share of $4.31) by about August 2028, up from $-75.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.1x on those 2028 earnings, up from -26.9x today. This future PE is lower than the current PE for the US Tech industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

CompoSecure Future Earnings Per Share Growth

Risks

• The company's market for premium metal cards is expanding beyond high-net-worth and mass affluent to the mass market, with metal cards currently representing less than 1 percent of the annual 4 billion payment cards shipped worldwide; this wide white space in market penetration signals significant revenue growth potential if adoption trends continue.
  
• CompoSecure's demonstrated and ongoing operational improvements through the CompoSecure Operating System have already led to notable gross margin expansion, from 51.6 percent to 57.5 percent year over year, suggesting that further manufacturing efficiency gains and cost management could drive higher net margins long-term.
  
• The company is experiencing robust growth domestically, with net sales up 22 percent in its core U.S. market, and is partnering with top-tier financial institutions and fintechs (including Chase, Gemini, Crypto.com, and American Express) for large-scale premium card programs, indicating durable demand that supports sustained top-line and earnings growth.
  
• Expansion of the Arculus platform into digital authentication and digital asset protection is driving incremental revenue with positive contribution, showing the potential for high-margin diversification beyond physical cards and broadening future earnings streams.
  
• A healthy M&A pipeline, guided by experienced leadership and disciplined acquisition criteria, positions CompoSecure to further accelerate revenue and EBITDA growth, with management fees from acquired businesses offering additional operating leverage and the potential to enhance overall profitability as the business scales.

Valuation

• The assumed bearish price target for CompoSecure is $16.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CompoSecure's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $611.8 million, earnings will come to $413.2 million, and it would be trading on a PE ratio of 6.1x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $19.84, the bearish analyst price target of $16.0 is 24.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.