Shark Bites: Why CompoSecure Is Testing a Potential Breakout
This metal credit card firm is performing steadily on a technical level and could offer some upside.
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One of the consistent patterns of action in the financial market is that, almost immediately after a strong day or two for the Russell 2000 IWM, there is a rotation right back into the Nasdaq 100 QQQ and the Magnificent Seven names.
That is what is occurring on Monday as small caps lag, and names like Nvidia NVDA, Microsoft MSFT and Apple AAPL are leading. It is good action for funds and investors that are passively invested in big-cap technology, but it isn't very interesting for speculative traders who are looking for some big movers. There are only about 20 stocks up 10% or more so far on Monday morning and no strong themes.
I will continue to look for some new stocks of interest, but I want to delve into CompoSecure CMPO. I discussed CMPO back in May when it was trading in the sevens. It has doubled since then, but I'm still holding a position and believe more upside is likely.
CompoSecure dominates the metal credit card business. It designs and makes payment cards for eight of the top-10 U.S. card issuers, including JPMorgan Chase JPM and American Express AXP. It holds over 80% market share in the metal card space and recently had great success with a 3% cash back card for Robinhood HOOD. The company could also benefit greatly if JPMorgan Chase acquires the Apple card business presently owned by Goldman Sachs. Negotiations over that deal are continuing, but the stock should jump sharply if it is consummated.
In addition to the metal payment cards, the company incorporates its Arculus authentication system into the cards and also offers digit asset storage and security. The extra layer of security combined with the attractive design of the cards is driving strong interest.
One of the main drivers of the stock in the past few months was a restructuring of its complex corporate situation. The majority holder of CMPO is now Resolute Holdings, which is controlled by the David Cote family. Cote is the highly regarded ex-CEO of Honeywell International Inc. HON and now serves as the company's executive chairman.
After the completion of the restructuring deal, the company announced, "We plan to focus our efforts on enhancing the company's organic growth and operational efficiency while evaluating ways to further diversify its customer base and business mix through M&A."
The company is now well-positioned to seek acquisitions and has added Tom Knott to its board of directions. Knot was formerly the CEO of Goldman Sachs Acquisition Holdings.
The company has been a steady EPS grower and is expected to continue to grow at 12% to 14% over the next few years, with an EPS estimate of $1.25 in 2025. It trades with a trailing P/E of 14, but the potential for acquisitions, new deals and operational streamlining is attracting further interest.
On October 2, Lake Street increased its target for the stock to $18 from $14 due to rumors that JPMorgan Chase, which is a CMPO customer, may take over the titanium Apple Card program from Goldman Sachs. This has significant potential for CMPO, which is JPM's exclusive metal card manufacturer.
Technically, the stock has been performing very steadily and is testing highs and a potential breakout. The chart is extended here, but the potential for new deals should provide strong support. The company will announce third-quarter earnings around November 7.
At the time of publication, DePorre was long CMPO and NVDA.
