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Jonathan Poland
Jonathan Poland
Articles (492)  | Author's Website |

Stamps.com Is a Buy

Even without a dividend, long-term investors will do better than the market with Stamps

November 07, 2018 | About:

On Oct. 31, Stamps.com (NASDAQ:STMP) reported excellent financial results from its latest quarter.

Revenue was up 25% year over year, non-GAAP earnings per share were $2.76, beating by 38 cents (GAAP earnings per share were $1.75). Also, the company raised its full-year guidance for revenue to $580 million and for earnings per share to $11.60, while authorizing $90 million for share repurchases, which is always a great idea when a stock is undervalued as Stamps.com is currently.


Stamps.com has been around since the late 1990s and has grown into one of the best brands in internet-based shipping solutions for personal and business needs. The company generates sales from monthly service fees and transaction-related fees. Now that e-commerce has started to overtake traditional retail, with just about everything being shipped, Stamps.com is an even better position to profit going forward.

Convenience is king -- arguably the most important commodity of our time. Stamps.com is a 24-hour post office with a strong relationship with the U.S. Postal Service that helps it offer discount shipping to its members.

More importantly, Stamps.com is massively profitable with gross margins over 80% and capital spending at less than 5% of net income. In the last 12 months, Stamps.com has booked $179 million in profit on $521 million in sales. These figures are up big from a decade ago when the company did $10 million in profit on $85 million in sales. What's more, the book value has grown even faster, up 8x from $4.35 to $33.63. The stock has followed suit, rising from $9.00 at the start of 2009 to over $170 a share currently.

The stock is trading at just 16x forward earnings with management continuing to press its foot on the gas to grow domestically as well as overseas. Again, the company's capital costs are so low that it can easily increase its marketing budget by 50% without much harm to current quarter performance.

Stamps.com continues to bolt on acquisitions as it builds a total shipping platform. It added ShippingEasy in 2016 and recently bought U.K.-based MetaPack Ltd. for $220 million in cash. Metapack will bring in about $50 million in annual sales for now, but further broadens the company's European footprint with enterprise-level solutions and a client list that includes some of the best online brands. With $282 million in cash, investors can also expect more deals coming.

Regardless of what happens, management has proven itself to be smart enough to buy strategically -- profitability and book value growth is testimony. The market capitalization is $3.2 billion, or roughly 6x sales. Compared to other non-profitable online services in more competitive industries, Stamps.com is trading at a 40-50% discount.

And, if the company continues the double-digit growth in earnings, by 2021 earnings per share could surpass $13. At the current multiple, that would put its price in the $240 to $260 range, a nice gain from its current price. For long-term buy-and-hold investors, Stamps.com presents even better possibilities as online shopping continues on trend and Stamps.com moves global.

Disclosure: I am not long/short Stamps.com. 

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About the author:

Jonathan Poland
I spent more than 15 years helping DIY investors earn over 30% a year. Today, I help business leaders take those insights and build better assets. Thanks for reading. Do your own analysis before investing. Good Luck.

Visit Jonathan Poland's Website

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