Positioning portfolios towards companies that will surprise the market may help generate outperformance. Credit card transaction data can be an effective tool in forecasting performance for certain companies before the market has fully realized and reacted.
Since you've landed on this page,
credit card transactions have occurred in the United States.
Potential Informational Advantage: credit card data is provided monthly with a six day lag, while corporate earnings announcements occur quarterly with a two and a half week lag.
By observing changes in the average transaction size, it is possible to glean whether sales growth is driven by an increase in volume or a widening of margins. Furthermore, the data may help predict sales growth for up to a year in the future due to persistence in the growth of ticket size.
The credit card data signal may be effective when applied to consumer sectors and industries where credit card networks are used more often. Home improvement stores, for example, cater to consumers and small businesses—two groups that often pay with credit cards.
Credit card data arrives monthly, providing insights into profitability between quarterly earnings reports. Because the forecasted quarterly sales growth is positively correlated with actual quarterly sales growth, we believe we can gain an informational edge and potentially better price securities more quickly than the broader market.
Source: GSAM. As of 1/31/2017. For illustrative purposes only. Represents Quarterly Year over year sales results and forecasts of the Home Improvement Retailer sub-industry from 1.31.08–1.31.17. The upward sloping line represents the positive correlation between forecasted quarterly sales growth and actual quarterly sales growth. Past correlations are not indicative of future correlations, which may vary.
Source: GSAM. For illustrative purposes only. The graphic illustrates potential informational advantage of receiving monthly credit card data with a six day lag, while corporate earnings are typically released quarterly with a two and a half week lag.
Source: GSAM. For illustrative purposes only. The chart shows the year-over-year (YoY) sales growth for each quintile of the YoY growth in average credit card ticket size. YoY Sales Growth is calculated as the yearly sales growth above or below average yearly sales growth from March 31, 2008 to December 30, 2017. There were 113 companies in the universe as of December 30, 2017.
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