Green Dot Corp. (NYSE:GDOT)

TSIF (99.96) Submitted: 7/31/2012 9:25:08 AM : Start Price: $9.29 GDOT Score: +7.38

It usually takes two to three days for a falling knife to settle on the ground. It can still be sharp and the proverbial "other shoe" sometimes drops just as you think things have settled. I made my play on Green Dot Corp on the 60% skyhigh fall to earth a few hours after the knife dropped and so far I'm not knicked too badly. The "other shoe", however very likely could fall on this one at some point. The combination of competetion and potential regulation has brought Green Dot down to earth in a big way. Reloadable prepaid debit cards, cash transfer services and money loaded gift cards seem to have more traction than I would have guessed from those with credit impairments or those who want to "allocate" their resources in a non-credit, but strict manner. Regulation flares on costs that can be charged/accrued.

Green Dot Corp has the lead with 60,000 retail outlets, one key being Walmart which is over half their business. Green Dot's earning announcement disappointed by about 0.03 and revised downward, but still expects earnings to grow. Green Dot's foray to $30 per share was clearly a bit over heated as hindsight shows. The 60% plunge to $9, however, could present a buying opportunity if Green Dot continues to increase profits, even slightly as the current price gives a forward P/E of sub 7. I'm not a fan of the industry, mostly due to the nature of anything financial making a profit attracting a wide array of competition, but I don't see Green Dot Corp going away overnight. Should some other competitor take thier Walmart business, the other shoe would be a cement block. Green Dot appears to have the margins to maintain thier Walmart business if necessary by staying competitive, something Walmart requires.

One to watch. If Green Dot Corp exceeds their new "lower bar" OR some big player decides to take a short cut into the market by acquistion then this could still be lucrative. Green Dot also pointed out that new activation, security requirements was also hampering sales. Green Dot has made acquisitions and is looking toward expansion. Cast is 5X debt so there is room to maneuver. Overall, however, this could also be a slow burn downward over the next year or two as the industry attacks. Watching closely, looking overhead, should be safe for another quarter.