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Stamps.com (STMP) - Hidden Gem?

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January 19, 2014 – Comments (2) | RELATED TICKERS: STMP

Stamps.com (STMP) is a company I came across after looking at the Forbes' "20 Non-Tech Stars Of The 2013 Best Small Companies List." Stamps is a leading provider of internet-based postage solutions, with over 450,000 monthly subscribers. Stamps allows customers, small businesses, and other enterprises to purchase postage through an online or software interface. Subscribers of Stamps -- who can simply print stamps from their home or office -- tend to pay up to 80% less on postage costs than through standard avenues. 

Stamps has a market cap of $618 million, and only three analysts follow the company. The company's financials immediately caught my eye, especially considering the stock is trading at a P/E of 18. Earnings are currently growing at 25% year-over-year, coming in at $34.58 million total over the past four quarters. Revenue has been growing at roughly 7.5% and is expected to increase closer to 9%-10% in the upcoming quarter and 2014. Stamps has an impressive profit margin of 27.55%; a number which is steadily increasing (the profit margin was over 28% in the most recent quarter). The company also raised its 2013 earnings guidance by 12% after reporting 3Q 2013 results.

Cash flow growth is equally impressive. In the three quarters so far reported in 2013, the company produced $33.2 million in operating cash flow -- already surpassing the $27.29 million produced by the business in 2012. Over the past year, the company's cash position has nearly doubled to $73.54 million -- with no debt whatsoever. Stamps seems to be a quickly growing cash machine. 

The company has an interesting management team. Most of the executives (including CEO Kenneth McBride) of Stamps have been with the company since 1999 (the company began operating in the mid-1990's). Even more interesting is the fact that all of the company's executives are 45 years old or younger. In other words, Stamps's executive leadership has been with the company since they were 25-30 years old, working their way up the ranks of the business. Insiders own 14% of all shares outstanding. 

The few analysts following the business expect Stamps to expand earnings at a pace of 20% annually over the next five years (over the past five years earnings expanded 37.2% annually). I like a lot of what I see with Stamps: a young and experienced management team, an innovative product with a substantial customer base, and what appears to be rock solid financials (earnings and margins growth, cash flow production, and a stellar balance sheet). 

I'll probably rate Stamps an "outperform" on CAPS this week, and will continue to research the company as time allows. So far, this looks like a quality small-cap business trading at a very reasonable P/E of 18 -- a hidden gem if I've ever seen one. My research has only scratched the surface, but so far this strikes me as a great business with extensive potential trading at a reasonable (and potentially cheap) valuation. 

Best,
David K

2 Comments – Post Your Own

#1) On January 19, 2014 at 6:42 PM, YoungNGunnin2 (20.25) wrote:

What a brilliant idea for a company fool.  Kudos

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#2) On January 19, 2014 at 7:03 PM, Stockllama10 (59.25) wrote:

Rec'd.

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