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Why Green Dot Is One of the Best Long Term Growth Plays


In this economic environment, pre-paid debit cards are perfect for those skeptical of financial institutions and those struggling to make ends meet.

Chances are, we've all known a person that's financial skepticism was molded by the Great Depression, and they've likely shared stories about burying money in the yard, under the mattress and in the walls of their home. It was an uncertain time in America; one in which financial institutions had no stability, leaving consumers feeling as if money was only safe in their own possession. Sounds all too familiar, doesn't it? While times aren't quite that tough, recent tragic events at Lehman and other financial institutions have once again left the American consumer to wonder where their money is the safest. Thankfully, almost a century later, given the advances in technology, we have some alternatives to a tin coffee can stashed under the sink. The most prevalent and relevant of which is Green Dot (GDOT) pre-paid debit cards.

There's a whole other growing segment of the population that isn't skeptical about the location of their money, they just don't have enough of it. These are the people you might see at the local check cashing service center jamming coins into the Coinstar (CSTR) machine to see how much they can scrape together for groceries. These are the people who can't get approved for a credit card and live paycheck to paycheck. If you've ever been in that situation, you know just how critical it is to know where every penny is and where it's going.

Whether a Skeptical Have or a Struggling Have-Not, these are the people Green Dot services were made for. Green Dot provides and manages a pre-paid debit card program. At present, they are available in almost 50,000 locations throughout the United States, including many Walmart (WMT) stores, and accepted anywhere that takes Visa (V) and Mastercard (MA), making it convenient and affordable. Green Dot customers never incur bank overdraft or payment penalty fees because, much like a pre-paid phone card, you cannot extend yourself beyond the amount you have placed on the card. There is no credit check, free online bill pay, free direct deposit and free withdrawals at more than 15,000 participating ATMs. Green Dot offers a variety of cards with a variety of deposit minimums, including both Visa and MasterCard, a Student Card, an Online Shopping Card, an Express Bill Pay Card and Spanish Language Card.

The company went public in July of 2010 at $36 a share and has traded as high as $65 so far. Its revenues have increased between 32% and 53% in each of the last four quarters. It is expected to increase its earnings 21% this year and another 32% next year to more than $2 a share. The company makes most of its money from new card activation fees, monthly maintenance and ATM fees. With expected expansion into more retail outlets and the increasing need for a service of this kind, I expect to see further growth. Institutional investors have taken notice, as more than 150 have established a position in the stock in its first six months of trading, making this stock one of my favorite long-term growth plays right now.

Dave Dispennette is the founder of The Stock Playbook, a do-it-yourself investment advisory service that boasts a 48% average annual return for its portfolio over the last five years. Dave's professional career represents more than 20 years of experience with some of the biggest firms on Wall Street. To see his latest stock recommendations or to sign up for a FREE 14-day trial, click here.
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No positions in stocks mentioned.

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