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Bull Of The Day: Stamps.com (STMP)

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Stamps.com (STMP - Free Report) is finally coming out of the ashes of the dot-com bubble burst, and the pandemic has been an enormous tailwind for this enterprise's inevitable revival. Packages have been flying in and out of doors like it's Christmas every day this past year, and Stamps.com had its best year in the history of the company. The safest and easiest way to get items where they needed to go during lockdowns was with printed-out labels. Stamps.com's best-in-class shipping solutions have been a perfect conduit for digital stamps, with the promise of shipping "faster for less money with automated shipping tools and discounted USPS rates."

STMP has a history of blowing its earnings estimates out the water, with its average beat over the last 5 quarters being over 100% (according to Zacks' Consensus Estimates). Analysts have maintained a very conservative stance on STMP because of the high level of uncertainty, but STMP has consistently impressed. None the less the stock has been experiencing some wild price action over the last year and based on historical trends, now seems like a perfect time to trade this exciting company.

STMP has had a pattern of trending upward into every earnings reports and either selling out on the day earnings are released or getting a big boost that eventually levels out. Either way, this stock is always an exciting one to hold as earnings season kicks off, and with expectations remaining relatively hampered because I think STMP might be in for a boost.

Analysts are getting increasingly optimistic about this business's future, raising their full-year EPS guidance, and propelling Stamps.com into a Zacks Rank #1 (Strong Buy).

The Business

Stamps.com has been the leading online postage provider in the US since it began back in 1996. There is no better way to describe a company than from the horse’s mouth directly. Below is an expert from the company's website:

"Stamps.com was the first company to be approved by the U.S. Postal Service® to offer a software-only postage service that lets customers buy and print postage online. The Company targets its services to small businesses, home offices and online retailers, and currently has PC Postage partnerships with Avery, Microsoft, HP, the U.S. Postal Service and others."

Stamps.com surpassed 1 million quarterly customers for the first time in its final quarter of 2020, with the holiday season undoubtedly providing a positive boost to this digital shipping giant's financials. This represents a 35% increase from the prior fourth quarter. Stamps.com has adopted the new golden business model of Silicon Valley, the subscription model, which locks in a consistent and expanding revenue base. Right now, the enterprise has 732,000 monthly subscribers and growing.

The shelter-in-place initiative across the US has forced many businesses and individuals to look towards Stamps.com's best-in-class services for their shipping needs. Now a mounting group of customers are conditioned to utilize the ease and convenience of Stamps.com. This service will continue to be a staple in the post-pandemic's New Normal.

The Chart

You can see STMP's wild roller coaster rides I discussed earlier in the chart below.

I believe this low-beta equity (not as impacted by the broader market) is on its way back up to its seemingly quarterly resistance level of $285 (the stocks old 2018 high), or a 38% upside from where it's trading at today.

The Financials

Stamps.com has seen double-digit sales growth ranging from 10% to 70% every year for the past decade, with one exception. The exemption was 2019, which saw a one-off 2.6% decline due to the business ending its exclusive partnership with the US Postal Service (USPS) in order to "fully embrace partnerships with other carriers who (they) think will be well-positioned to win in the shipping business in the next five years." USPS couldn't provide the 2-day shipping promise that Stamps.com was looking to achieve, a delivery timeline that is becoming a shipping industry standard because of the e-com giant Amazon's (AMZN - Free Report) leading-edge business model.

The stock lost nearly 90% of its value from its 2018 summer high to its low in May of 2019. The company and its stock quickly recovered. Now, STMP is poised to break out past its 2018 highs, with nothing but momentum behind it.

Management opted-out of providing 2021 guidance because of the large range of potential outcomes and uncertainties. Analysts covering this company have cited that their guidance is on the conservative side, considering the ambiguities. This conservatism on estimates is providing this stock with a springboard to soar off of.

Stamps.com has a fortress of a balance sheet with more cash & equivalents than it's the sum total of liabilities. The company has tremendous financial flexibility with its consistent cash-flows, zero debt in the books, and a very liquid balance sheet.

Final Thoughts

Today the company is not only more profitable than ever before, but its growth outlay looks top notch for the coming New Normal. All the analysts covering this stock call it a strong buy today, with price targets ranging from $300 to $405. This is a massive upside from the $207 STMP trades at today.

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