A Member of Pat McKeough’s Inner Circle recently asked for his views on a stock that specializes in online mail delivery.
A variety of clients, from individuals to large enterprises, use the company’s Internet-based services for mailing and shipping. Stamps.com has seen its revenue soar over the past five years. The company continues to report improved results and the shares have surged as well. While the outlook for the stock is positive, says Pat, it could be vulnerable if revenue and profit growth slow down.
Q: Pat: Can I have your opinion of Stamps.com? Thanks.
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A: STAMPS.COM (symbol STMP on Nasdaq; www.stamps.com) is the leading provider of online postage and shipping software, with over 725,000 customers.
Those clients mainly use its Internet-based services to mail and ship postcards, envelopes, flats and packages. They are sent out under a wide range of United States Postal Service (USPS) mail classes, including First Class Mail, Priority Mail, Priority Mail Express, Media Mail, Parcel Select and others.
Stamps.com offers customers discounted postage rates compared to USPS retail prices on certain mail pieces such as First Class letters, and domestic and international Priority Mail and Priority Mail Express packages.
Its customers include individuals, small businesses, home offices, medium-size businesses and large enterprises. Within those segments, the company targets both mailers and shippers. In addition, it offers multi-carrier shipping solutions under the brand names ShipStation, ShipWorks, and Endicia.
Stamps.com revenue has soared 305.1% over the last five years, which reflects its acquisitions but also the growth in e-commerce and online shopping.
Sales moved up 10.5% from $115.7 million in 2012 to $127.8 million in 2013.
They then rose a further 15.2% in 2014 to $147.3 million. That gain was partly due to the company’s June 2014 acquisition of ShipStation, a web-based multi-carrier shipper based in Austin, Texas. The sales price was a total of $50 million cash and up to 768,900 Stamps.com shares. ShipStation was founded in 2010 and creates tools to import orders from shopping-cart platforms and allow vendors to fulfill those orders. In October that same year, Stamps.com paid $22 million to acquire Shipworks, a shipping software company that integrates with shopping cart platforms
Overall sales climbed 45.3% in 2015 to $214.0 million, mainly from the March 2015 purchase of Endicia. Stamps.com purchased the Internet postage company from Newell Rubbermaid for $215 million. Endicia’s products include DYMO Stamps and PictureItPostage brands.
Growth stocks: Earnings rise by more than 38% in the most recent quarter
In 2016, Stamps.com’s sales jumped 70.2% to $364.3 million, along with its expanding e-commerce and its June 2016 acquisition of ShippingEasy, Inc. That Texas-based business offers web-based multi-carrier shipping software to let online retailers and e-commerce merchants organize, process, fulfill and ship their orders. The price was $55 million. Sales rose a further 28.7% in 2017, to $468.7 million.
Over the same five-year period, Stamps.com earnings rose 290.2%, from $38.6 million, or $2.30 a share, to $150.6 million, or $8.19.
The company continues to report improved results. In the three months ended March 31, 2018, it earned $2.54 a share, up 38.8% from $1.83 a year earlier. Revenue of $133.6 million was up 27% from $105.0 million. The consensus estimate was for earnings of $1.92 a share on sales of $122.4 million.
Stamps.com continues to profit from expanding e-commerce, of which shipping is a huge part.
The shares are down from their all-time high, reached last month, but are still up a whopping 78% in the past year—on momentum investing. The stock trades at a high 28.0 times this year’s forecast earnings of $9.17 a share.
The outlook for the company is positive, but the high p/e means the stock is vulnerable to a setback if the company reports an unexpected quarter of slower revenue and profit growth.
Inner Circle recommendation: Stamps.com is okay to hold, but only for aggressive investors.
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