There is little doubt shareholders of Ozforex Group Ltd (ASX: OFX) will not be happy to see the share price chart below. Shares in the international payment services provider have underperformed the broader market by more than 22% over the past year. A large portion of the decline has occurred since the company released its full year results at the end of May.
Although the results may have disappointed some investors, there are four reasons why I think OzForex should be on the watchlist of any investor who is looking for a fast-growing company.
Reason 1 – Excellent Full Year Results
OzForex was able to deliver an increase in full year earnings per share (EPS) of 18%. Turnover and net operating income both increased by over 20% and free cash flow also increased strongly. Despite the strong growth in earnings, the shares trade at a premium to the broader market and investors may have been expecting better results.
Investors may have also been disappointed with the increase in expenses and this was mainly attributed to an increase in promotional costs and increased headcount to support growth.
Reason 2 – Growing Customer Base
The full year report revealed the number of active clients utilising OzForex's services increased by 18% in the last year. Active clients are those people who have made a transaction over the last 12 months and are made up of 2 categories – 'existing clients' are those who have transacted for the first time more than 12 months ago, and 'new dealing clients' who have transacted for the first time within the last 12 months.
Pleasingly for OzForex, as you can see in the figure above, the number of active clients has doubled over the past four years and 'new dealing clients' reached record high levels this year. OzForex also has a growing base of long-term customers and the percentage of income generated from long term customers also continued to increase this year.
Reason 3 – Increased number of cross-border transactions
It is estimated that global payments will increase by 7.8% each year until 2018 and be worth USD $2.3 trillion by then. Cross-border transactions and trade finance will be the primary growth drivers and OzForex is well placed to take advantage of this trend. It has a growing international footprint and has plans to enter new targeted markets. OzForex has been successful in penetrating into the lucrative US market and although there were competitive trading conditions in Asia, OzForex was still able to grow revenues in this region.
Reason 4 – Competitive Advantage
OzForex has considerable scale and is able to offer its clients discounted pricing with premium service. This gives it a competitive advantage over other providers who usually compete on price or service – but not both. The company operates its own proprietary technology which enables it to keep costs down while keeping the customer experience friendly and fast. Importantly, OzForex also has a strong network of major banks which enables transactions to be processed quickly and at a low cost.
Foolish takeaway
Although OzForex has seen its share price fall heavily since the release of its full year results, I would be inclined to keep the stock on my watchlist for the moment. Shares still trade on a price to earnings ratio of more than 22 and there may be more short-term volatility. I think the future is bright for OzForex and I will watch the stock closely to take advantage of any opportunity that may present in the future.
