This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Verifone – Looking More Like A Value Stock Every Day

A lot of the market chatter before the announcement yesterday has been the perceived rising threat of new entrants such as Square. What Square does is to allow businesses to use a small device that can be plugged into a mobile platform such as an iPhone or an iPad in order to collect payments on the go. With gross revenue of about $40 million and zero profits to show for its venture so far, Square is now valued at the private market at $3.25 billion. Verifone, with $1.8 billion in annual revenue to boot, is valued today by the market at a billion dollars less than a scrawny technology upstart. Again, Square made $40 million with an ‘M’ and Verifone made $1.8 billion with a ‘B’. Yet somehow, Square is valued much more than Verifone.

The father of value investing, Benjamin Graham, once taught us about a quirky little fellow called Mr. Market. Mr. Market is somebody who turns up every day at the stock holder’s door offering to buy or sell his shares at a different price. Usually the price quoted can be plausible and close to what the stock is actually worth. Occasionally, it is ridiculous. Verifone’s stock price in relation to Square’s private valuation definitely looks a little out of whack.

Now, let’s do a few simple back-of-the-envelope calculations. In FY 2012, Verifone generated $218 million in operating cash flow. That’s real money that went into their pockets. At the current market cap of $1.97 billion, the company is selling on the market at about 10 times its operating cash flow. Its main competitor, Ingenico SA, trades on the Paris Stock Exchange at a market cap of around €2.38 billion with a much lower operating cash flow of €100 million. That means its main competitor is selling on the troubled European markets at a much higher premium of 24 times operating cash flow. eBay Inc, whose valuation is now driven much more by its PayPal payment business, also trades at a much more costly ratio of 18 times operating cash flow. Staying within the credit card payment universe, Mastercard also trades higher at 21 times operating cash flow. Why should an entrenched business like Verifone trade so much less?

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs