Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.
Currency Exchange International Corp. (symbol CXI on Toronto; www.ceifx.com), exchanges currency and offers other financial products and services in North America.
The company first sold shares to the public at $6.65 each and began trading on Toronto in March 2012.
In addition to exchanging currency, its offerings include wire transfers, travellers’ cheques, foreign bank drafts and international cheque clearing. Clients include financial institutions, companies and individuals.
Currency Exchange operates 30 branches in what it sees as high-traffic areas across the U.S., such as shopping malls. It also operates five vaults that fulfill orders and serve as distribution centres for its branch network.
In its fiscal 2014 third quarter, which ended July 31, 2014, Currency Exchange earned $1.5 million, or $0.26 a share, on $6.8 million of revenue (all amounts expect share price and market cap in U.S. dollars).
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Investment advice: Proposed subsidiary would make it easier to deal with big banks
The company recently changed its fiscal year-end to October 31 from December 31, so it didn’t provide directly comparable year-earlier results. However, in the quarter ended June 30, 2013, it earned $1.5 million, or $0.38 a share, on $3.8 million of revenue.
The higher revenue mainly resulted from U.S. Exchange House Inc.’s banknote operations and proprietary trading software, which Currency Exchange bought for $2.35 million in May 2014. (The company may have to pay an additional $2.65 million over the next two years, depending on how well this business performs.)
The stock has jumped over 60% since October 2014, largely on speculation that regulators will approve Currency Exchange’s plan to set up a subsidiary as a Schedule 1 Canadian bank. That would make it easier for the company to deal with Canada’s main banks (which tend to avoid non-bank foreign-exchange firms), and attract new clients.
After its big gain, the stock trades a high 23.4 times the company’s forecast fiscal 2015 earnings of $1.02 a share.
Currency Exchange operates in a competitive business—especially its branches. Consumers have many ways to get foreign currency, such as branches of banks and companies like Western Union, ATMs in other countries and by using credit and debit cards.
We don’t recommend Currency Exchange International. If you own the shares, we think you should sell.
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