This should be my final purchase as I will be about 98% invested. The goal was for me to be fully invested at or near bear market territory. I do not recall the magic formula showing any type of financial company, so I was a bit surprised when TSS appeared on the list.
The Business According to Google Finance
“Total System Services, Inc. (TSYS) provides electronic payment processing and related services to financial and nonfinancial institutions. Services include processing consumer, retail, commercial, government services, stored value and debit cards. TSYS provides services to financial and nonfinancial institutions throughout the United States and internationally.”
Magic Formula
TSS currently appears on the magic formula screen for the top 50 companies with a minimum market cap of 2000 million. According to magicformulainvesting.com, TSS currently sports a 10% pre tax earnings yield and a ROIC between 75-100%. Calculating the numbers by hand, I get an earnings yield of 9.8 % and ROIC of 63%.
Why its down?
A slowdown in consumer spending leads to less fees earned on payment processing. Also, the company is not as growing as fast as before and the company lowered its fiscal guidance.
Other Numbers
TSS currently sports a P/E of 16. Although not deep into contrarian territory, it certainly is well below its 10 year average of 36. The average of 36 can be misleading as TSS had astronomical valuations during the tech bubble years between 98-2001. Eliminating the outliers, I get an average P/E of 25 for the past 6 years. TSS continues to post great return on equity (ROE) with its average around 20% and return on assets averaging 15%.
Cash position after purchase.
1%
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Thanks,
Mark