Consider Buying This Stock Even if it Misses Earnings
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you are looking to benefit from the way payments would be made in the future, then you should take a look at VeriFone Systems (NYSE: PAY). But then, you need to have a really strong stomach if you are looking to hitch a ride on this stock since it’s quite volatile. The stock’s down almost 7% so far this year, and swings wildly every time there’s some positive or negative news around it.
For instance, the stock fell around 8.5% early in October when it was reported that VeriFone’s rival, Square, had landed a deal for installing its own payment systems into more cabs in New York City. But it did cover back those losses once the cloud cleared and it emerged that no such thing had happened.
The next big test for VeriFone investors comes on Dec. 13 when the company posts its fourth-quarter results. The last time it did so, the stock had tanked 11% as the company missed on the top line and guided fourth-quarter revenue behind estimates. However, one of the main reasons behind the company’s lowly outlook was that its staging and repair center in Brazil had caught fire, and led its customers to find other vendors.
VeriFone had expected the effect of this fire to go on in the fourth-quarter, leading to a lower revenue outlook. In addition, negative currency effects had also held back VeriFone last time; but over the long run, its prospects are very strong.
The Common Link
VeriFone’s leadership position in electronic payments and solutions is a big advantage for it. The company has positioned itself nicely to benefit from whatever method people would use to make payments.
Consider this -- PayPal, eBay’s (NASDAQ: EBAY) subsidiary, processed $35 billion worth of transactions in the third-quarter, and also saw a three-fold jump during Black Friday and Cyber Monday. In addition, PayPal is also moving to support in-store payments.
Next comes Google (NASDAQ: GOOG) and Isis, both of which have put their weight behind mobile payments. Google Wallet enables customers to store credit/debit card information and also uses near field communication (NFC) to process payments at MasterCard Paypass merchants. Isis, prevalent mostly in retail stores, is also quite well-known and it is expanding its presence through its mobile application.
The common link between all the above mentioned ways of payment is VeriFone. As fellow blogger Chad Henage points out, “VeriFone supports Google, PayPal, Groupon, Visa, MasterCard, and American Express.” Hence, VeriFone’s support of all the major players in the mobile payments industry is undoubtedly a big advantage, which should help it keep its growth intact. Moreover, VeriFone has also partnered with McDonald's and Dunkin' Brands’ Dunkin Donuts for their own wallets.
Diversified Application Areas
And if you though that the catalysts end here, you are wrong. VeriFone is recording impressive growth in emerging markets. It has landed contracts in China and is finding favor at many Asian banks. In addition, the company has successfully deployed its systems in the transportation sector, and had won another contract from the New York Metropolitan Transportation Authority in the third quarter. Also, VeriFone’s systems are present in cabs in London and it had secured a contract to fit 6,500 cabs in Washington, D.C. with its systems earlier this year.
Moreover, VeriFone’s valuation also makes it an intriguing buy. The company trades at a trailing P/E of 15.14, which is lower than its direct rival NCR Corp’s (NYSE: NCR) trailing multiple of 25.88. Also, a lower PEG ratio of 0.42 as against NCR’s 0.71 suggests that VeriFone is expected to grow at a faster rate. Hence, even though NCR’s diversified offerings, which include software services, offer an advantage, it might not offer the same rate of earnings growth as blogger Chad Henage pointed out in his article.
The Bottom Line
As I stated at the outset, if you are looking to ride the evolution of the payments industry, VeriFone offers a good option, but you should be prepared for short-term rockiness. Hence, in case the stock tanks once again after earnings, it would be another opportunity to buy into this long-term story to gain from growth in digital payments.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and VeriFone Holdings. Motley Fool newsletter services recommend eBay and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!