Up-and-Coming PayPal: Under the Radar

MOUNTAIN VIEW, Calif. (TheStreet) -- In the early days of the Internet, people were concerned about using a credit card for online purchases. Submitting personal financial information over the Internet has become common practice now, yet smaller merchants don't have the same resources as big names like Amazon(AMZN Quote) and Wal-Mart(WMT Quote) for payment verification and processing.

Enter CyberSource(CYBS Quote), based in Mountain View, California, home to Google(GOOG Quote). As online shopping increasingly becomes the preferred method of shopping, CyberSource will reap the benefits.

CyberSource has deals in place with eBay's(EBAY Quote)PayPal as well as Visa(V Quote), two major names in the electronic-fund-transfer world, and has a variety of services available for businesses of all sizes. Recently, that has become a profitable model for the company. Its operating margin reached into the 5% range in the second and third quarters after being negative for the majority of 2008 and 2007. The net margin has also widened substantially as revenue has grown and the business is better able to cover fixed costs.

Revenue for the fourth quarter is expected to increase by about 18% from a year earlier as customers scour the Internet for deals and avoid perennially packed malls. The company may even beat those lofty expectations -- it has done so over the past seven quarters.

Investors who piled in before last year's shopping season have been treated to outsized gains. The stock has appreciated 72% over the past 52 weeks and still looks fairly cheap, with a forward price-to-earnings ratio of 19.2. A high amount of short interest in the stock is troubling. If the company's earnings continue to improve, the "shorts" will go away.