GreenSky Inc Up 63% in 2019 and It’s Just Getting Started…

Investors Finally Waking Up to GreenSky Inc

GreenSky Inc (NASDAQ:GSKY) has been quietly rewarding buy-and-hold investors in 2019. In November 2018, knee-jerk investors dumped their GreenSky shares after the company lowered its fourth-quarter guidance. The result: GSKY stock plunged 35%.

Then a strange thing happened. In early March 2019, the company reported better-than-expected financial results and investors poured back in.

Since the start of January, the software company’s share price has advanced roughly 63%, erasing all of the losses it sustained in the November bloodletting. Since we first looked at GreenSky back in early March, the company’s share price has climbed almost 20%.

While GreenSky stock has tremendous momentum, it still needs to climb 21% before recovering from the marketwide sell-off that occurred in October.

Investors are, no doubt, pleased with the company’s performance in 2019. But by all indicators, GreenSky is just getting started.

GreenSky Inc Overview

GreenSky Inc is a software company that provides mobile, online, and in-store financial technology to banks and various types of retailers.

Most investors are not familiar with GreenSky because it operates behind the scenes. It doesn’t make loans using its own money or advertise loans directly. Instead, it partners with banks who then make loans online through the company’s GreenSky mobile app.

Nearly 15,000 merchants across the U.S., from Home Depot Inc (NYSE:HD) to individual contractors, use its point-of-sale software technology.

Every time one of GreenSky’s active merchants use its technology to make a sale, the company receives a fee, which is currently at 7.1%. This provides GreenSky Inc with a recurring revenue stream. It also helps lower customer acquisition costs and increases merchant retention rates.

To date, the Atlanta, Georgia-based tech company has helped facilitate $16.0 billion in funded loans to 2.2 million consumers. (Source: “About Us,” GreenSky Inc, last accessed April 25, 2019.)

GreenSky Inc Stock

(Source: “GreenSky, Inc. (GSKY),” Yahoo! Finance, last accessed April 25, 2019.)

GreenSky’s initial public offering (IPO) didn’t start off well. The company went public in May 2018 and found some tested support in September near $20.00.

Then came the October sell-off, which saw GSKY stock give up ground. In November, the stock was kicked off a cliff because the company lowered its fourth-quarter guidance. Then, in December, there was another brutal marketwide sell-off. GSKY stock ended the year 58.4% down.

GreenSky stock enjoyed a bit of a renaissance in early 2019, taking full advantage of the January effect. By the end of February, the stock had advanced more than 19%. It then got a boost on March 5 after the company reported full-year financial results that came in near the high end of guidance.

Investor optimism has helped GreenSky’s share price trend steadily higher. As already noted, it has erased its November losses and is closing in on its pre-October sell-off levels.

GSKY stock is heading toward a golden crossover, a bullish indicator where the 50-day moving average crosses over the 200-day moving average. We’re still a little ways away from that event, but it portends additional moves to the upside.

Chart courtesy of StockCharts.com

Strong Q4 and 2018 Results

On March 5, 2019, GreenSky announced that its fourth-quarter revenue was up 22% year-over-year at $109.7 million. Since GreenSky gets a cut of every transaction it makes, it’s imperative that investors pay close attention to transaction volume. (Source: “GreenSky, Inc. Reports Full Year 2018 Financial Results,” GreenSky Inc, March 5, 2019.)

To that end, fourth-quarter transaction volume increased by 23% to $1.3 billion. During the fourth quarter, the average transaction fee rate increased to 7.1% from 6.9% in the third quarter. Fourth-quarter net income was $22.8 million ($0.11 per share).

Full-year revenue was up 27% year-over-year at $414.7 million. Full-year transaction volume increased 34% to $5.0 billion. The average transaction fee rate in 2018 was 6.9%, compared to 7.4% in fiscal 2017. Net income for 2018 was $127.9 million ($0.41 per share).

During the fourth quarter of 2018, GreenSky repurchased approximately 4.7 million shares, at a cost of $43.9 million, as part of the company’s $150.0-million share repurchase program. Over the first two months of 2019, GreenSky repurchased an additional 1.2 million shares at a cost of $12.7 million.

“I am pleased with GreenSky’s solid fiscal 2018 operating results reported, consistent with guidance, and remain enthused with the prospects for continued outstanding growth and profitability as we enter fiscal 2019,” said Chairman and CEO David Zalik.

In 2019, GreenSky expects its transaction volume to increase between 27% and 35%, its revenue to grow between 30% and 38%, its pro forma net income to grow between 17% and 28%, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to increase between 23% and 32%.

Analyst Take

Despite its rough ride in 2018, GreenSky actually did well. The company posted record third-quarter results, and its fourth-quarter and year-end results were better than expected (at least as far as investors were concerned).

And 2019 looks even better, with revenue, transaction volume, and pro forma net income expected to climb.