Small-cap stocks: Why patience matters

The payment sector has been the darling of Wall Street the last few years and has continued to be an active space with several mega-mergers. Only four months into 2019, the payment sector already reached $85 billion of merger and acquisition announcements — almost doubling the full-year record of $49 billion in 2018.1 I expect the trend to continue.

The Invesco Canada Small Cap Equity team, which manages funds in the US and Canada, has been participating in this trend through our investment in Global Payments, a Top Five holding in Invesco Select Companies Fund (5.34% of fund assets as of March 31, 2019).

Global Payments enables merchants to accept card and digital payments, and the company earns a small fee for processing the transaction. We started investing in the company in August 2013 at around $24 a share.2 At the time, the investment community was concerned about a data breach at Global Payments, as well as the risk that companies such as Square could lessen the need for payment intermediaries (Square was not a fund holding as of March 31, 2019). On top of that, the US economy was slowing, and there was a federal government shutdown and a sharp drop in job growth (sound familiar?).

A case for patience

Despite these concerns, we believe that the consumer switch from cash payments to card payments is an enduring shift, and Global Payments has scale as one of the leading providers in the US, UK, Canada and several Asian countries. We bought the stock at a very attractive valuation of 12x forward earnings. As of March 31, 2019, Global Payments had last traded at $136.52.3

Yet, having the tenacity and patience to hold onto any stock is challenging, even when the underlying story is solid. Every day for the past six years of owning Global Payments, there has been a long list of perfectly rational and well-supported reasons to sell: