Stamps.com, Inc. (NASDAQ:STMP)

CAPS Rating: 3 out of 5

The Company is a provider of Internet-based postage solutions. Its core service allows customers to buy and print United States Postal Service approved postage using any PC, an ordinary inkjet or laser printer, and an internet connection.

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Member Avatar OKwarrior (25.98) Submitted: 5/9/2014 6:18:31 PM : Outperform Start Price: $29.23 STMP Score: +11.23

High ROE, no debt. They missed on earnings first quarter, so the stock price is down. The market for this stock is an increasing number of businesses tha mail packages to consumers. The competition is BIG. Pitney Bowes for one, but they also compete directly against Amazon and other online retailers. Nevertheless, I think it is worth watching, given its ROE and low PE.

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Member Avatar BlazerMania (97.38) Submitted: 1/21/2014 2:38:18 PM : Outperform Start Price: $38.78 STMP Score: -19.95

P/E of 18 for a company growing significantly at significantly higher levels.

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Member Avatar TMFPencils (99.81) Submitted: 1/19/2014 8:46:01 PM : Outperform Start Price: $38.39 STMP Score: -18.75

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.

The makings of a hidden gem

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' 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.

Do people even need postage anymore?

A valid concern is whether postage services will even be needed in an increasingly digital and prepaid-postage age. However, Stamps is bringing on new customers at a pretty quick pace. Take a look at Stamps' cumulative monthly subscribers:

2011: 385,000
2012: 435,000
3Q 2013: 464,000

Stamps' base of monthly subscribers is increasing between 11% and 13% each quarter. That is a healthy growth rate, especially considering the company's strengthening margins.

Stamps seems to be pretty innovative in terms of its product offerings. Even if less packages are being sent than in past years, many of the items that are shipped could probably receive more reasonable postage rates using Stamps. For example, Stamps has a service specifically for independent sellers on Amazon Marketplace, in addition to a service for independent sellers on eBay.

Consider this in the context of the January 9 announcement from Amazon:

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"Amazon today announced a record-setting year for Marketplace Sellers with businesses of all sizes selling on Amazon. In 2013, Marketplace Sellers on Amazon sold more than a billion units worldwide, cumulatively worth tens of billions of dollars."

"The Amazon Marketplace, which consists of more than 2 million Marketplace Sellers of all sizes worldwide, experienced record growth during the busy holiday selling season. On Cyber Monday, more than 13 million units were ordered worldwide from Marketplace Sellers on Amazon, growing the total units ordered by over 50 percent year-over-year."
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So, while the dynamics of postage and shipping are certainly evolving, Stamps appears to have a young and innovative team focused on leading the way in terms of postage offerings. Stamps is an effective system for small enterprises, independent sellers, etc. who ship products on a fairly regular basis.

I think Stamps actually has quite a bit of room to grow. If anything, I expect the company to take the lead in the continuing evolution of shipping and postal services in the U.S. I'll continue to research Stamps, but I'm growing more optimistic about the business.

Risks and other concerns

I don't like to see Stamps' abysmal rating on Yelp: http://www.yelp.com/biz/stamps-com-el-segundo Thankfully the company's customer count is steadily increasing despite these reviews, but it seems like there is a disconnect between what people think the company offers and the services that Stamps does indeed offer. (In other words, only people who ship items semi-regularly will probably find it worthwhile to open an account with Stamps.)

Another concern is that the insider ownership is largely from independent directors of Stamps, rather than the team of young executives. This concern of mine is offset somewhat by the fact that the executives have been with the company for 10-15 years. Still, it would be nice to see the executives with a more significant financial stake in Stamps.

Foolish final thoughts

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).

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.

In the short-term, anything can happen. However, after evaluating the business, I am confident Stamps will outperform the market over the long haul. Stamps is clicking on just about all cylinders, and I anticipate that to continue for the foreseeable future. Outperform.

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Member Avatar L8starter (63.55) Submitted: 11/29/2013 4:41:43 PM : Outperform Start Price: $46.07 STMP Score: -35.60

No debt, positive cash flow, continuing revenue growth

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Member Avatar rtichy (31.45) Submitted: 11/6/2013 2:37:45 PM : Outperform Start Price: $46.35 STMP Score: -38.54

Integrating with many platforms, enhancing efficiency and ease of use, Pitney Bowes machines are being replaced with this. 1 of 4 licensed to print postage by the USPS, so an oligopoly, not a monopoly, but still...

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Member Avatar TMFDivine (30.91) Submitted: 10/18/2013 6:37:37 PM : Outperform Start Price: $46.90 STMP Score: -41.06

Let's be honest. Stamps are a pain in the neck. Who wouldn't want to print their own?

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Member Avatar chris293 (84.53) Submitted: 7/14/2013 4:09:38 AM : Outperform Start Price: $42.50 STMP Score: -37.95

Stamps says what it does and we hope that the numbers are right about this company's growth.

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Member Avatar 3185296328795229 (41.47) Submitted: 10/30/2012 5:54:59 PM : Outperform Start Price: $26.29 STMP Score: -10.44

We'll always need stamps and as communication around the world is furthered, we'll have even more people we wish to contact via snail mail, and we'll invest in companies like Stamps.com which is the most popular, at least it seems.

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Member Avatar BTFOtrader (< 20) Submitted: 11/2/2011 11:05:48 PM : Outperform Start Price: $28.76 STMP Score: -39.96

May have found a bottom as it bounces off the 10dma

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Member Avatar cibient (20.56) Submitted: 11/2/2011 1:08:41 AM : Underperform Start Price: $28.88 STMP Score: +42.29

Wow..STMP's chart looks parabolic. The company is profitable and mgmt just increased revenue guidance. However, it is due for a pull back, which may not happen so quickly due to the 15% short interest. I personally tried the service and did not feel it was worthwhile to keep paying for. Their advertising reminds me of AOL in the 1990s.

More commentary:
http://seekingalpha.com/article/303856-stamps-com-s-chart-looks-like-it-s-straight-from-the-dot-com-boom

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Member Avatar BamaBoyT (92.92) Submitted: 9/15/2011 9:43:18 AM : Outperform Start Price: $22.79 STMP Score: -15.67

This stock is great investment. Post offices will be out of business soon and this company will sky rocket

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Member Avatar Hassjo (29.56) Submitted: 7/29/2011 2:57:56 PM : Underperform Start Price: $16.33 STMP Score: -55.18

Anything related to the USPS must be bloated and bad....

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Member Avatar rocknpopstocks (< 20) Submitted: 1/21/2011 2:51:02 PM : Outperform Start Price: $11.17 STMP Score: +149.76

looks like a market rocket.

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Member Avatar 21popsontop (< 20) Submitted: 11/29/2010 12:30:02 PM : Outperform Start Price: $13.18 STMP Score: +89.62

dot.com has a shot

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Member Avatar MViscio1 (99.59) Submitted: 10/24/2008 2:41:23 PM : Outperform Start Price: $9.19 STMP Score: +136.23

great stock

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Member Avatar Tak3natheFlood (34.16) Submitted: 6/8/2008 8:22:16 PM : Outperform Start Price: $12.90 STMP Score: +113.21

Small Cap Star

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Member Avatar eden63 (< 20) Submitted: 3/24/2008 11:54:26 PM : Outperform Start Price: $9.12 STMP Score: +219.81

More and more people are looking for a way to do task at home.

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Member Avatar 5starman (< 20) Submitted: 2/26/2008 11:25:07 AM : Outperform Start Price: $7.57 STMP Score: +296.68

I don't know, this seems like one of those little boring companies that you expect to go nowhere, but it does. I think with the recent pullback, we got a good value here and the stock should do well.

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Member Avatar bullshiite (31.74) Submitted: 2/23/2008 7:16:13 PM : Underperform Start Price: $7.48 STMP Score: -301.30

This company has a net income of around 11 million per year. There retained earnings shows a cumulative loss of 466 million. At this rate the company will take about 40 years to reach a break-even point. This company just doesn't seem like it is being managed well. Another thing that seems odd to me is 45 million spent on research and developement for 2007. That figure is up 50% from it's 2005 amount of 30 million yet their net income for 2005 and 2007 so almost no growth.

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