If you have cash piling up on the balance sheet do you have any evidence the company is actually making the sales generating that cash and that cash is real?
Thanks for the question Christopher - an important question.
I discuss this topic in my initial post, linked at the top of this post. I'll c/p the commentary here:
For companies in emerging markets, especially China/Hong Kong, an “obvious” valuation can lead some international investors to automatically assume fraud. Therefore, the most important concern is the validity of the business. Is Pax a fraud? There are two aspects to this question: 1) the actual operations and 2) the reported balance sheet.
1) Operationally, there is strong evidence the business is real. LACIS (Latin America and Commonwealth Independent States) is Pax’s largest geographic segment, accounting for ~46% of LTM revenue. Three of the largest players in Brazil cite Pax as a supplier. StoneCo and PagSeguro both state in their filings that Pax supplies a “significant amount” of their POS terminals. Cielo also reports that its terminals for SME merchants are from Pax. Disneyland has been a Pax customer for at least four years. In Europe, Loomis AB is using Pax terminals for its Loomis Pay initiative and Worldline SA cited Pax as a supplier before the acquisition of Ingenico. Ingenico discusses Pax as its strongest competitor, especially in emerging markets. Nilson data supports Pax’s shipment claims from year-to-year. And finally, and anecdotally, I have been to dozens of stores in NYC that use Pax terminals, numerous small businesses and gas stations in upstate NY that use Pax terminals, numerous stores in Charleston, SC that use Pax terminals, and at least three airports in the US (one in Florida and two in NY) that use Pax terminals. Given the security requirements for POS terminals, it seems unlikely that financial institutions, merchant acquirers, and large merchants would use terminals from an untrustworthy supplier.
2) From the outside, evaluating the reported balance sheet of any company is difficult. However, there are some positive indications with Pax. Pax’s financial statements and disclosure are clear and simple. There are no weird accounts. Using the current cash balance and backchecking the cash flow statement with the balance sheet results in a perfect match – the cash flow statement at least supports the cash on the balance sheet. The vast majority (~90%) of assets are cash, accounts receivable and inventory. Accounts receivable days and inventory days have fluctuated over the last decade, but generally stayed in a reasonable range or improved. There are also no growing liability accounts other than accounts payable, which has fluctuated within a reasonable range.
While without access to the company's internal books we can never know anything for sure, there is enough evidence for me that the business and balance sheet are real.
i paid in bratislava - slovak republic - china food .. on new pax terminal .. girl ..take me terminal to my hand .. and on other side was PAX ;) i felt better :)
If you have cash piling up on the balance sheet do you have any evidence the company is actually making the sales generating that cash and that cash is real?
Thanks for the question Christopher - an important question.
I discuss this topic in my initial post, linked at the top of this post. I'll c/p the commentary here:
For companies in emerging markets, especially China/Hong Kong, an “obvious” valuation can lead some international investors to automatically assume fraud. Therefore, the most important concern is the validity of the business. Is Pax a fraud? There are two aspects to this question: 1) the actual operations and 2) the reported balance sheet.
1) Operationally, there is strong evidence the business is real. LACIS (Latin America and Commonwealth Independent States) is Pax’s largest geographic segment, accounting for ~46% of LTM revenue. Three of the largest players in Brazil cite Pax as a supplier. StoneCo and PagSeguro both state in their filings that Pax supplies a “significant amount” of their POS terminals. Cielo also reports that its terminals for SME merchants are from Pax. Disneyland has been a Pax customer for at least four years. In Europe, Loomis AB is using Pax terminals for its Loomis Pay initiative and Worldline SA cited Pax as a supplier before the acquisition of Ingenico. Ingenico discusses Pax as its strongest competitor, especially in emerging markets. Nilson data supports Pax’s shipment claims from year-to-year. And finally, and anecdotally, I have been to dozens of stores in NYC that use Pax terminals, numerous small businesses and gas stations in upstate NY that use Pax terminals, numerous stores in Charleston, SC that use Pax terminals, and at least three airports in the US (one in Florida and two in NY) that use Pax terminals. Given the security requirements for POS terminals, it seems unlikely that financial institutions, merchant acquirers, and large merchants would use terminals from an untrustworthy supplier.
2) From the outside, evaluating the reported balance sheet of any company is difficult. However, there are some positive indications with Pax. Pax’s financial statements and disclosure are clear and simple. There are no weird accounts. Using the current cash balance and backchecking the cash flow statement with the balance sheet results in a perfect match – the cash flow statement at least supports the cash on the balance sheet. The vast majority (~90%) of assets are cash, accounts receivable and inventory. Accounts receivable days and inventory days have fluctuated over the last decade, but generally stayed in a reasonable range or improved. There are also no growing liability accounts other than accounts payable, which has fluctuated within a reasonable range.
While without access to the company's internal books we can never know anything for sure, there is enough evidence for me that the business and balance sheet are real.
i paid in bratislava - slovak republic - china food .. on new pax terminal .. girl ..take me terminal to my hand .. and on other side was PAX ;) i felt better :)