Stamps.com (STMP) Pre-Merger Analysis

This was one of my earlier posts where I correctly identified Stamps.com as a solid company and a potential M&A target. As it turned out, the acquisition did happen, and the stock was bought out for approximately $329.61 per share, which was about 50% higher than its price back then (FY2020-21). Naturally, the stock was delisted after going private. I’m sharing this post again here because my main goal with this website is to gather all my writings in one convenient place before I eventually move away from other social media platforms.

Key Metrics:

• Market Cap: $3.56B
• PE (TTM): 20.7
• PS (TTM): 4.7
• PEG (5 years expected): 1.66
• Float: 18.37M

Income Statement

Analysis

As you can see, revenue is growing quite well, and management has stated that they expect this growth to continue.

One negative is that STMP has no debt at all (as you can tell from the interest expense row). You would have expected them to load up on that sweet, sweet low-interest debt like every other company. But STMP’s management is highly conservative (that’s why they’re avoiding guidance, I suppose).

Some of its products have mixed reviews online, but ShipStation and its more recent product portfolio have received good reviews.

While some of its products have outdated stacks, they are heavily upgrading their software stack. They’ve already reached 1M paid subscribers (and churn is low). With a 77% gross margin, the company literally prints money, with net income coming in at close to 24%.

They also serve all the major e-commerce players. “Amazon, eBay, Facebook, Google, Etsy, Walmart, Shopify, BigCommerce, Wix, Magento, Square, WooCommerce, and others. We integrate with all of the major small business e-commerce tools and accounting software, such as QuickBooks, NetSuite, SAP, Volusion, ChannelAdvisor, and others. We integrate with fulfillment solutions, such as Fulfillment by Amazon, ShipBob, and others. And we integrate with ERP and CRM solutions, warehouse management solutions, and transportation management solutions. In e-commerce generally, the strength of our partnership network for shipping is unmatched.” — from the latest earnings call.

Note: There exist alternatives to some of its solutions (even a partially free one), but they don’t integrate well with all providers and don’t have all the solutions. As a business customer, not having access to all cost-saving opportunities is essentially having no opportunity at all.

When they terminated their deal with USPS, the stock dropped heavily. However, the COVID crisis proved that management was right all along, and this was the right choice for them.

STMP is expanding internationally, and its international expansion is being hugely underrated, in my opinion. Brexit may create some difficulty in the short term, but on the whole, it should be highly positive.

The stock is highly volatile, especially around earnings. I see this as a positive for the Reddit gamblers out there. The negative, however, is its low volume.

It has 90% institutional ownership. STMP could also double its repurchase program up to $120M by August. Very low short interest (no short squeeze for you).

Analyst price targets range from $280 to $405.

Although I don’t trust Glassdoor much, the CEO has 90% approval. Negative reviews don’t point to too many flaws other than the usual stuff, but they do have a low diversity score.

And although employees say they feel like a family, there seem to be some conflicts between STMP lifers and newer employees as a result.

Management’s COVID handling has also been praised.

As a kind of SaaS company, I don’t see why you couldn’t invest in it, especially when there’s a rumour of rebranding on the cards. For reference, PLTR is expected to grow 30% for the next 4 years, isn’t really profitable, and yet look at PLTR’s valuation metrics (P/S, etc.). While STMP likely won’t grow that much (they grew around 30% CAGR for the last 5 years), it does have solid growth potential in the 10-15% range (along with M&A possibilities).

Also, it’s not at ATH, unlike some of the other tickers that get frequently discussed. CHART

Not to mention, Alexa web rank shows almost all of the various Stamps websites growing hugely in traffic over the last 90 days (Metapack declined).

For those confused about what this company does, here are all the details you would need.

Also worth adding: in my opinion, the long-term trend is that more and more sales will go digital, and a big portion of this could be filled by small and medium enterprises using Shopify, Amazon, and similar channels to make their sales. STMP simplifies their work and saves them money on shipping and other costs like no other company. This puts them in just the right place at the right time. So I’d say it’s a long hold (a “buy it and forget it” stock).

How will this play out?

It will likely jump heavily before its earnings report in June and dump after the earnings report (most likely scenario). This is how it played out in all the previous quarters. It’s a classic case of “buy the rumour, sell the news.” Do remember, though, that past events don’t really dictate future events.

Bearish case:

Company executives seem to always dump their shares when they receive options (I know they gotta eat, but still). This is diluting and neutralizing the buyback.

Other alternatives could develop that might challenge its position. While they aren’t doing so now, it’s still good practice to remember that it’s not impossible.

This stock is not for the faint of heart because of its volatility.

It also has very little options volume, so it’s more of a shares play.

Management also seems to be ultra-conservative, always preserving cash and such. While that’s fine for a Japanese company, US stocks tend to get discounted if management does this sort of thing (think BRK.B).

Also, their cash and other infos seem to suggest they will likely have an M&A, which could negatively affect the stock in the short term.

10-K

I hope this helped you discover this ticker, and that you can do further due diligence to make sure it aligns with your investment goals.

Disclaimer: This is not investment/financial advice.