Triple-Digit Upside for VeriFone Systems Inc
A current push to the risk on trade helped to drive the NASDAQ to recover a key psychological technical level at 5,000. Leadership in the brand-name technology stocks has led the charge, but there are other aggressive trading opportunities with some of the battered technology issues, such as mid-cap VeriFone Systems Inc (NYSE:PAY). PAY stock is well down from its 52-week high of $33.94.
While many consumers may not be familiar with this name, VeriFone is the developer of a widely used encrypted point-of-sale (POS) transaction device and POS terminals found at businesses that process heavy transaction activity, such as grocery stores, gasoline bars, and major retailers. It is an established company that has been around for more than three decades and its technology and industry acceptance is high. There are nearly 30 million of its POS units installed in over 150 countries.
The share price of PAY stock was hammered after a quarterly miss, which is what can happen in a stock market that continues to be somewhat on edge. The reality is that the miss followed three straight quarters of earnings-per-share (EPS) beats, so clearly the selling was overdone.
VeriFone Deserves More Respect
Down 42% over the past 52 weeks, PAY stock may be a great example of what some investors are looking for if they are pursuing beta and seek to outperform the S&P 500.
Take a look at PAY stock’s chart below. You will notice the breakdown represented by the downside trading gap—as shown by the oval.
Chart courtesy of www.StockCharts.com
PAY stock appears to have found some base support and remains technically oversold, so we would not be surprised to see the stock rally back toward the $20.00 level. A move toward its 50-day moving average (MA) at $26.82 and 200-day MA at $27.08 is a start.
A look at the fundamentals for VeriFone suggests a potential opportunity, as long as the previously reported quarter was an aberration and not the beginning of a negative trend.
The reality is that revenue has increased in two straight fiscal years. Plus, the company’s growth is expected to continue at 5.2% to $2.1 billion in FY16 and 5.1% to $2.2 billion in FY17, according to Thomson Financial. VeriFone also turned profitable in FY15, with its projected earnings following revenue higher in FY16 and FY17.
PAY stock could rally, as the company can record a beat or match estimates in its next quarter. A rally in the stock could also help to trigger short covering support, as there were 6.28 million shorted shares, or about 5.72% of the float.
The Bottom Line on PAY Stock
A glance at the valuation shows an intriguing situation. PAY stock trades at a mere 9.05X its FY17 EPS. I don’t think it’s a value trap, either, as this attractive multiple is confirmed by a cheap price-to-earnings growth (PEG) ratio of 0.69 and 2.35X book value, which is attractive.
Now, there’s no timetable on when VeriFone will bounce, but the reality is that PAY stock is not a sub-$20.00 stock. Option traders could trade with calls that extend out to a January 2018 expiry to allow ample time for the company to figure things out.
(Note that this is not a buy recommendation for VeriFone stock. Rather, the evaluation of this stock is meant to be an example of the kind of picks option traders may consider and what to look for in a potential play.)