On July 10th, a family trust connected to VeriFone Systems Inc (NYSE:PAY) Board member Jeffrey Stiefler purchased 27,900 shares of stock at an average price of $17.89 per share. Insider purchases are often treated as bullish signals, as the insider would be reluctant to buy more shares and increase their company-specific risk unless they had a good deal of confidence in the company (according to economic theories of rational diversification). Our database of insider trading filings shows that two other VeriFone Systems Inc (NYSE:PAY) insiders were buying the stock during the month of June; studies show that stocks bought by multiple insiders are particularly likely- though, of course, not certain- to outperform the market. Read our analysis of studies on consensus insider purchases.
Verifone produces electronic payment systems used by retailers at the point of sale (for example, devices that consumers use to swipe their credit card to pay for their purchases). The stock price dived in February after disclosing preliminary first-quarter results far below analyst expectations and issuing disappointing guidance numbers, and is still down 41% year to date. Revenue for the second quarter of VeriFone Systems Inc (NYSE:PAY)’s fiscal year (the quarter ending in April) ended up being down 10% versus a year earlier, and even if we add back a litigation loss contingency the company’s operating income was essentially zero. Conditions were a bit better during Q1,but because of interest expenses Verifone still turned only a small pretax profit for the first six months of this FY. Cash flow from operations has been up, but only because of reductions in working capital. Wall Street analysts expect the business to somewhat improve next year, projecting $1.51 in earnings per share for a forward P/E of 12.
The closest peer for Verifone is NCR Corporation (NYSE:NCR), whose products include point of sale terminals (the company was formerly known as National Cash Register) which are complementary to VeriFone Systems Inc (NYSE:PAY)’s own payment systems. While NCR’s net income has been at a fairly low level on a trailing basis, the company experienced 22% earnings growth in its last quarterly report compared to the first quarter of 2012, supported by 13% revenue growth. The stock trades at 11 times forward earnings estimates as the sell-side expects these improvements to continue next year. We can also compare Verifone to eBay Inc (NASDAQ:EBAY), whose Paypal business unit is one of the many players trying to revolutionize mobile payments in a way that some have seen as a threat to Verifone’s business. eBay has also been seeing double-digit growth rates on both top and bottom lines. While the trailing and forward P/Es of 28 and 18 respectively suggest that the market has already accounted for a good deal of future earnings growth, it might be worth looking into as a potential “growth at a reasonable price” stock.
On a forward earnings basis VeriFone Systems Inc (NYSE:PAY) does look appealing, and of course we have multiple insiders buying the stock. However, we don’t feel comfortable in speculating that business conditions will improve this much- revenue has been down considerably, and the company does not seem to have been cutting costs enough to tread water on the profitability front. As a result we would at least want to wait for more financials from the company and would likely not be recommending it in value terms even then.
Disclosure: I own no shares of any stocks mentioned in this article.
