The trend toward wired Americans' doing their banking and bill-paying online seems inexorable. According to the most recent information I've seen, the number of people banking online increased by more than 50% from 2003 to 2004. Estimates show that more than -- perhaps many more than -- 60 million people now bank online, with an increasing proportion of those people saving $0.37 a pop by paying their bills online (and starving the U.S. Postal Service of revenue in the process).

E-bill processor CheckFree (NASDAQ:CKFR) rode this online-banking and bill-paying trend to another super quarter by the end of December. According to yesterday's earnings release, after years of red ink, the company is now firmly in the black, in terms of GAAP earnings. As a matter of fact, June 2004 ended the first year in which CheckFree made a full-year profit. Now it's just a matter of seeing how fast those profits rise and how far the company can keep them going.

For its fiscal 2005 second quarter, CheckFree's revenues rose 24% versus fiscal Q2 2004. Profits came in at $0.14 per diluted share, versus a $0.02 per-diluted-share loss in the year-ago period. Over the past six months, CheckFree did similarly well, earning $0.21 per diluted share (against a $0.10 loss in the fiscal first half of 2004) on a 25% gain in revenue.

Wall Street's reaction to the news was no surprise. After falling 2% in anticipation of an underwhelming report, CheckFree shares shot up nearly 5% in a wave of after-market buying. CheckFree is one heavily shorted stock, with more than 14% of its float sold short. Likely, much of last night's buying was by shorts rushing to close out their bets against the company.

But one has to wonder why, exactly, those bets were placed in the first place. According to Yahoo! (NASDAQ:YHOO) Finance, CheckFree generated more than $150 million in free cash flow over the 12 months preceding this past quarter. That rate of free cash flow is only accelerating -- it clocked in at just under $85 million for 1H 2005, a figure that puts the company on track to make $170 million or more in free cash flow this year. With its enterprise value now standing at roughly $3.2 billion, the company sports a forward enterprise-value-to-free-cash-flow ratio of 19. That's not exactly cheap, but with analysts currently projecting 20% annual earnings growth for the company over the next five years, it's hard to argue that the company is overvalued.

To the shorts who escaped their positions last night, I can only say, "Well done." Best to get out while the getting is still good. Those who remain short on the company, though, should perhaps reconsider why they're betting against a not-overpriced, debt-free, cash-generating company that's riding a long-term trend in its favor. To this Fool, shorting sounds like a recipe for disaster.

For further Foolish musing on CheckFree, read:

Fool contributor Rich Smith has no position in any of the companies mentioned in this article.