NEW YORK (TheStreet) -- With shares trading near its 52-week high, it's tough to call the 2015 stock performance of VeriFone Systems (PAY) a disappointment. VeriFone, a maker of terminals for electronic cash register payments, reports second-quarter earnings Thursday after the market close, and it's well-positioned to reward patient shareholders for years to come.
VeriFone has an attractive business and an exceptionally broad customer base. You name the industry -- financial, retail, hospitality, transportation, health care, etc. -- if it accepts cash-register payments, chances are VeriFone is getting a cut of each transaction.
And with consumers looking for more convenient and safer ways to pay for goods and services, VeriFone's total payments solutions capabilities will give it an edge over competitors like Global Payments (GPN) and Ingenico S.A. (ING.PA).
Why? In addition to electronic payment terminals, San Jose-based VeriFone is well-diversified in areas like consulting and project management. These types of value-added services help customers get the customized software solutions they need. Not only does this keep clients loyal to VeriFone, but the company is able to up-sell these services to boost its profit margins. This explains in part how VeriFone is projected to grow earnings at triple the rate of revenue.
Consider: For fiscal 2015 (which for VeriFone ends in October), analysts project earnings of $1.83 per share -- 21% higher than its 2014 earnings of $1.51 per share. Revenue, meanwhile, is projected to climb 6.8% to $2 billion.
This means that although VeriFone shares appear expensive today at 25 times earnings -- compared to an average P/E of 21 for S&P 500 (SPX) stocks -- VeriFone's accelerated profit growth suggests it can grow into its P/E. And in my view, it deserves a higher P/E in the future.
Based on analysts' average earnings estimate of $2.24 per share of 2016, next year's earnings will grow at 1 percentage-point faster than fiscal 2015's. In other words, now's the time to buy PAY, because these shares won't get cheaper.
Admittedly,VeriFone hasn't rewarded investors much in 2015: It's up just 2.61%. But look back for a full twelve months, and its 16% gains are nothing to sneeze at. During that span, the Dow Jones Industrial Average (DJI) and the S&P 500 climbed about 8% and 9%, respectively. Not to mention, PAY, which now trades around $38, is just two years removed from bottoming out at around $15 -- not too shabby.
All told, these shares are up more than 150% in only two years. And while the stock now carries a P/E of 25, which is a premium to the S&P 500, VeriFone's execution -- which includes topping Wall Street's revenue and earnings projections for seven straight quarters -- has earned it that respect.
In that vein, although revenue growth trail earnings growth by three-to-one, it's encouraging that the company is figuring out ways to get so much of that revenue growth to the profit bin. More than anything, this is what makes VeriFone an attractive long-term investment. With a consensus buy rating and an average analyst 12-month target of $41.50 -- 9% above where it trades today -- VeriFone can still pay.