VPRT has experienced the tremendous growth over the last 10 years. The top line of the company has grown from $6.1 million in 2001 to more than $810 million in 2011, and all of the growth has been organic. The Internet-based order- processing systems has received and stored tens of thousands of individual orders on a daily basis, and organize these orders for efficient production and delivery to the customers. The second quarter ending December 31, including the majority of holiday shopping season is becoming the strongest quarter for sales of consumer-oriented products such as holiday cards, calendars and gifts. So business is quite seasonal, with the main focus on the second quarter. Historically, the second quarter net income delivered 33%-40% of the total profit for the year.
VPRT successfully used two pillars of its business models. First, the customers mainly come from the Internet where they can conveniently browse for products and place orders. So VPRT doesn’t have large large capital expenditure like other brick-and-mortar establishments. In addition, it uses a mass-customization manufacturing model, meaning that customers can choose between fixed products or it can customize the products to fit customers’ tastes. The company got more than 70,000 photographs and illustrations to appear on every single product it offers to customers. With that economy of scales, the company can provide the private small businesses lower priced products than other printing services can offer. VPRT can be considered one of the outstanding business in the strategy of low cost leadership, that leads to providing customers with low cost printing services, further enhance its economy of scale. However, the business model can be easy to copy, and that would lead to substantial competition in the near future.
Over the years, VPRT experienced the growing trend of operating income as well as net income. And the same trend can be spotted in the level of operating cash flow and free cash flow, although the cash flow position seemed to be more fluctuating than the operating and net income.
|Operating Cash Flow||-7||35||54||88||120||154||163|
|Free Cash Flow||-25||7||-13||18||37||46||119|
When the income turned positive from 2006 onwards, VPRT began to deliver double digit return on equity consistently. The return on equity over 06 years average since 2006 is staying at nearly 23%, with the range of 18-39%.
In terms of financial structure, VPRT got quite conservative and liquid one. The company is debt-free, even with D/A is 23.2% but the main component of liabilities is accrued liabilities. In the asset side, the PP&E takes around 54% and the cash level of as high as 34% of the total company’s asset. Adjusting the level of cash, with $1.15 billion in market capitalization, the enterprise value of the company stays around $1 billion. Currently, VPRT is trading at reasonable valuation, of 16.7x P/E, 3.2x book and only 7.6x cash flow, half of the 05 year average historical valuation.
In terms of insider trading, VPRT is experiencing the significant insider buying with large amount of shares in. It can somehow indicates the signal of undervalue.
In conclusion, VPRT can be considered the position for the basket of value investment portfolio. It was not screamingly cheap at this price, but it is somehow undervalued, at least comparing to its historical valuation, besides the undervalue signal of large insider buying.