Up 42% YTD, Grab This Breakout Russell 2000 Stock for More Gains

In the thriving financial transaction card market, CompoSecure, Inc. (CMPO) stands out as an essential player. With a laser focus on designing and producing premium cards for major issuers like JPMorgan Chase (JPM), American Express Company (AXP), and Capital One Financial (COF), CompoSecure has established a unique - and critical - niche.

As recent strength in the Russell 2000 Index (RUT), a key gauge for small-cap stocks, generates headlines, it’s worth pointing out that RUT component CMPO has outperformed both its parent index and the large-cap S&P 500 Index ($SPX) by a wide margin in 2024. Against this backdrop, Wall Street analysts are becoming increasingly bullish on this small-cap stock.

Despite an impressive 42% rally this year, CMPO’s compelling 54% upside potential - based on its average price target from analysts - makes this breakout pick an enticing opportunity for investors looking to capitalize on its robust performance and Wall Street's bullish outlook.

About CompoSecure Stock

Headquartered in Somerset, New Jersey, CompoSecure, Inc. (CMPO) designs and manufactures metal, composite, and proprietary financial transaction cards. With a market cap of around $619 million, the company offers various products, including metal veneer and full metal cards, and the Arculus Cold Storage Wallet, which supports digital assets like Bitcoin (BTCUSD) and Ethereum (ETHUSD).

It partners with financial institutions, fintech, and security specialists, enabling trust and security for millions globally. In 2023, CompoSecure expanded its reach, supporting over 150 card programs, demonstrating its adaptability, and solidifying its position as a preferred partner for card issuers.

Shares of the payment cards manufacturer are up about 42.5% on a YTD basis, overshadowing the broader S&P 500 Index’s 16% gains during this time frame.

Like many small-cap growth stocks, CMPO doesn’t yet pay a regular quarterly dividend. However, the company introduced a special cash dividend of $0.30 per share, paid to its shareholders on June 11. 

From a valuation standpoint, CMPO stock trades at 7.15 times forward earnings and 1.62 times sales, lower than the tech sector medians.

CompoSecure Surges After Q1 Earnings Beat

CompoSecure reported its Q1 earnings results after the close on May 6, and the stock gained 3.9% in the subsequent trading session. Net sales rose 9% annually to $104 billion, beating Wall Street’s estimates by 5.1%, primarily driven by its metal payment card business. Adjusted EPS of $0.25 surged 8.7% year over year, exceeding forecasts by 4.2%.

Its cash balance of $55.1 million at the end of fiscal Q1 more than doubled compared to the year-ago quarter. CompoSecure's domestic sales increased 26.3% annually to $93 million, outpacing international growth. This reflects its tailored approach to local market dynamics and client needs, driving substantial top-line gains.

CompoSecure launched new card programs like Delta (DAL) Reserve from recycled airplanes, Robinhood's (HOOD) Gold Card, and collaborations with Lloyds Bank in the UK and Rogers Bank in Canada. Teaming with Robinhood Markets and Fiserv (FI) in May showcased CompoSecure’s prowess in premium card creation, driving growth through innovation and strategic partnerships. 

Moreover, CompoSecure’s renewed long-term contracts with JPMorgan Chase and American Express Company underscore its robust client relationships and solidify its market position, ensuring stable, predictable income streams from its premium metal and composite card offerings.

The company reaffirmed its full-year outlook for net sales to range between $408 million and $428 million, while adjusted EBITDA is projected to be between $147 million and $157 million. With its competitive edge, stability, and consistent guidance, the company is poised to maintain growth momentum and navigate market headwinds smoothly.

CompoSecure is expected to announce its Q2 earnings results on Aug. 12. Analysts tracking the stock expect its Q2 EPS to rise 4% to $0.26.

Over the longer term, the company’s profit is projected to reach $1.07 per share in fiscal 2024, up 10.3% annually, and rise another 15.9% to $1.24 per share in fiscal 2025.

What Do Analysts Expect For CompoSecure?

On July 10, BofA analysts led by Cassie Chan initiated coverage of CompoSecure with a "Buy" rating and a $9 price target. They highlighted CompoSecure’s dominance in designing and manufacturing payment cards for 8 of the top 10 U.S. card issuers, including JPMorgan’s Chase Sapphire Preferred/Reserve, AmEx’s Centurion, Platinum, and Gold card programs, and Capital One’s Venture, commanding about an 83% market share overall.

BofA believes CompoSecure could thrive as metal card issuance rises and its Arculus security services address increasing card fraud. The analysts see CompoSecure’s innovation - like cards made with glass, stainless steel, and even gold, like its Robinhood offering – as key to attracting and retaining high-quality clients. BofA analysts expect the company to achieve double-digit revenue growth, over 50% gross margins, and above 30% adjusted EBITDA margins.

Key catalysts for CMPO, according to BofA, include solid quarterly results, easier second-half comparisons, and potential upward revisions to Street estimates for the current and next fiscal year. Chan’s team believes CompoSecure’s growth prospects will dispel investor doubts and boost its valuation, especially with rising Arculus adoption not yet accounted for in consensus estimates.

CMPO stock has a consensus “Strong Buy” rating overall, a step up from a “Moderate Buy” rating of a month before. Out of the seven analysts covering the stock, five suggest a “Strong Buy,” one recommends a “Moderate Buy,” and the remaining one analyst advises a “Hold” rating. 

The average analyst price target of $11.86 indicates a notable potential upside of 54% from the current price levels. Meanwhile, the Street-high price target of $18, raised by B. Riley Securities in May, suggests that the stock could rally as much as 134%.