A VeriFone Systems Inc (PAY) Insider Thinks the Market Overreacted to Bad News

Peers for Verifone include NCR Corporation (NYSE:NCR), formerly known as National Cash Register and still involved in the production of point of sale terminals as well as self-service kiosks, and eBay Inc (NASDAQ:EBAY), whose PayPal may prove a competitive threat by offering a mobile payment system. NCR Corporation (NYSE:NCR) experienced double-digit growth rates on both top and bottom lines in the first quarter of 2013 versus a year earlier, and analyst expectations for continued growth result in a forward earnings multiple of 11 and a five-year PEG ratio of 0.8. It’s surprising to us that it doesn’t seem to carry much of a premium to VeriFone Systems Inc (NYSE:PAY) despite its stronger performance. eBay Inc (NASDAQ:EBAY) has also been doing well, going by recent financials, though in that case analysts seem to be a bit less optimistic: the stock features trailing and forward P/Es of 25 and 16 respectively. It’s an interesting company, but the valuation is high enough that we would prefer to wait for more results.

We’ve seen that VeriFone Systems Inc (NYSE:PAY)’s operating income after adding back litigation loss contingency expenses fell on a q/q basis, while it had risen a year ago, and that while the company isn’t in danger as far as cash flow from operations is concerned the changes in working capital mask weakness on that front as well- particularly compared to the capex numbers. As a result we aren’t confident that Verifone can maintain its current business, and the stock’s valuation wouldn’t make it a good value if earnings per share were to decline further. Even with this fairly large insider purchase, then, we would avoid the stock for now.

Disclosure: I own no shares of any stocks mentioned in this article.