Cardtronics, Inc. (CATM): Aggressive Accounting, Secular Decline Says Kerrisdale

Cardtronics, Inc. (CATM): Aggressive Accounting, Secular Decline Says Kerrisdale

Kerrisdale Capital’s investing notes on Cardtronics, Inc. (NASDAQ:CATM).

We are short shares of Cardtronics, Inc. (NASDAQ:CATM), the largest non-bank owner and operator of ATMs, primarily in the US and UK. Cardtronics’s core business is installing ATMs inside brick-and-mortar retailers like 7-Eleven and CVS, where high foot traffic generates withdrawals that in turn generate surcharge fees (paid by consumers) and interchange fees (paid by card-issuing banks). In addition, banks sometimes pay Cardtronics to put their brands on its devices or to offer surcharge-free withdrawals to their customers.

Despite its exclusive focus on the secularly declining ATM market, Cardtronics, Inc. (NASDAQ:CATM) trades at the rich valuation of a high-growth firm, with trailing and forward P/E ratios of 37x and 26x, respectively, 53% higher than the S&P 500 median. Moreover, we believe that Cardtronics has inflated its earnings via aggressive accounting. It depreciates its ATMs over much longer periods than its competitors do – more than eight years rather than five years – thereby understating expenses. Applying a five-year average life to Cardtronics ‘s assets would have reduced EPS in 2013 from $0.86 to just $0.19.

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