Summary: ON SALE
Score: 20/20
MOS: 51%
Share Price: $195
Sticker Price: $404
Is Stamps.com stock a good buy?
Stamps.com is an internet-based mailing and shipping services company founded in 1996 and based in El Segundo, CA.
Before we dive into the business, here are some fun facts on Stamps.com
- They were founded under the name StampMaster by Jim McDermott, Ari Engelberg, and Jeff Green who were MBA graduate students from UCLA.
- They were among the first companies to obtain approval from the United States Postal Service for beta testing and introducing internet postage.
- In 1999 they acquired IShip.com, a company that compared shipping service pricing.
- In 2013 they acquired ShipStation, a web-based shipping solution.
- In 2015 they acquired Endicia, an internet postage company.
- In 2016 they acquired ShippingEasy, a platform that allows retailers and e-commerce companies to organize, process, fulfill, and ship orders.
- In 2018 they acquired MetaPack, a London-based company providing delivery management technology to e-commerce brands.
Stamps.com generates revenue by selling postage direct to consumer or through subsidiaries like ShipWorks, ShippingEasy, and ShipStation.
If you go direct through Stamps.com, you’ll find that the company operates like a SaaS (Software as a Service) model and charges monthly prices that start at $17.99. Recurring revenue business models are highly scalable and lucrative which is why tech companies can be so profitable.
One of the big benefits of buying postage through Stamps.com is postage is actually cheaper than going direct through USPS or UPS. Stamps.com has buying power due to the volume of orders it processes which is why USPS and UPS are willing to give Stamps.com a discount. Competitors of Stamps.com have described this as an unfair competitive advantage. Regardless if this is unfair or not, it is a moat that motivates a lot of customers to stay with Stamps.com.
Stamps.com had an outstanding year in 2020. Covid-19 caused a lot of retail stores to shut down which in turn increased demand within the e-commerce industry. A substantial increase in online shopping increased the demand for postage and in turn, Stamps.com revenues and profits skyrocketed. Their revenue increased by 28% and net income increased by 129%.
On February 26, Yahoo Finance released an article stating that Stamps.com will buy back $120M in shares through August of 2021. Share buybacks typically raise share prices. Fewer shares available for the general public create a higher price per share. Share buybacks can sometimes cause a negative perception of a company because it’s a means of falsely inflating the share price. In other words, the share price increases not because of an increase in revenue, net income, or EPS, the increase is caused by a company decreasing share supply which in turn increases demand. As long as a company announces a share buyback well before the share buybacks begin, the company should not receive extensive criticism.
We’ll get to the financials in a moment but let’s address the obvious. Stamps.com currently has a 20/20 score in Tykr which is extremely rare. I’ve been using Tykr for 5 years (Originally built with Excel) and the only stock that achieved 20/20 in those 5 years was NVDA (Nvidia) back in 2017 or 2018. This is an impressive achievement but we can’t make a buying or selling decision strictly based on numbers.
Let’s take a look at the 4 M’s.
MOS (Margin of Safety): Stamps.com is classified as On Sale within Tykr. The MOS is 51% and the score is 20/20. Keep in mind, the minimum MOS to qualify as On Sale is 50% so Stamps.com just barely meets that requirement. Although the potential returns on this stock may not be as high as other stocks, the overall score tells us the financial health is outstanding and this is a safer stock.
Meaning: Stamps.com is fairly easy to understand. Consumers and businesses require postage to ship products all around the world. We know the e-commerce industry is growing fast which means postage isn’t going away anytime soon. It’s also important to note the pricing strategy of charging like a SaaS. This creates recurring sustainable revenue which is much healthier for a business.
Moat: Stamps.com has a pricing competitive advantage because it buys a large volume of postage from USPS and UPS. It’s able to charge less than the competitors which is a good thing today but can this be sustained? Typically, if your competitive advantage is price then it’s a race to the bottom which can cause businesses to lose profitability. A lot of small businesses and inexperienced business leaders will try to create a moat by charging less than the competition. In most cases, not all, this causes businesses to go under. A much wiser moat is to create a superior product and service and actually charge more than your competition. At the moment, the low pricing doesn’t look like a concern for Stamps.com due to that 20/20 score but it’s a red flag to pay attention to. Stamps.com has a lot of competitors. If those competitors were to receive the same pricing power through USPS and UPS as Stamps.com, it could cause Stamps.com to lose its competitive advantage and in turn, the revenues and profits will decline.
Management: Ken McBride is the current Chairman and CEO. He’s served as CEO since 2012. He served as President from 2001 through 2012. He also served as CFO from 2000 to 2004. Before he joined Stamps.com he was a research analyst for Salomon Brothers, a top-tier investment bank based out of New York. He also worked as an engineer within the semiconductor industry. Overall, he has a perfect background to serve as CEO of a public company. His experience as CFO and experience within the investment banking industry show’s he has a strong understanding of finance and investments. His semiconductor industry experience show’s he has a strong understanding of tech. His tenure at Stamps.com for 20 years shows he understands the postage industry extremely well. On top of this, he’s quiet on social media. He keeps his head down and focuses on providing excellent service for his customers.
Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.
Here are the annual numbers and why the company is a 20/20.
Revenue (Found on the Income Statement)
2017: $468M
2018: $586M
2019: $571M
2020: $757M
Revenues have a steady growth.
Net Income (Found on the Income Statement)
2017: $150M
2018: $168M
2019: $59M
2020: $178M
Net income in 2019 is slightly concerning but the jump in 2020 is impressive.
EPS (Found on the Income Statement)
2017: 8.90
2018: 9.13
2019: 3.33
2020: 9.37
EPS in 2019 was also concerning but again, 2020 is impressive.
Net Change in Cash (Found on the Cash Flow Statement)
2017: $46M
2018: -$40M
2019: $42M
2020: $287M
The Net Change in Cash growth in 2020 is very impressive.
Total Assets (Found on the Balance Sheet)
2017: $679M
2018: $852M
2019: $902M
2020: $1.2B
The Total Assets have a steady growth.
Total Liabilities (Found on the Balance Sheet)
2017: $181M
2018: $239M
2019: $236M
2020: $323M
The Total Liabilities are increasing slowly which is okay.
Total Debt (Found on the Balance Sheet)
2017: $60M
2018: $50M
2019: $0
2020: $0
Zero debt the last two years is impressive.
Total Equity (Found on the Balance Sheet)
2017: $497M
2018: $613M
2019: $665M
2020: $974M
The Total Equity growth in 2020 is impressive.
With a score of 20/20, the income statement, cash flow statement, and balance sheet are very strong. When looking at the 4 M’s, the MOS checks out. The Meaning shows the postage industry will remain in demand as long as e-commerce remains in demand. The Moat is the red flag. As mentioned, the pricing power creates a competitive advantage today but if the competition were to receive the same pricing power, this would be detrimental for Stamps.com. The Management is excellent. Ken McBride is a perfect choice to run this company.
As you can see, stopping at the Tykr analysis is not advised. Yes, Tykr does all the heavy lifting mathematical work but you need to look past the stock and look at the business. The 4 M’s will help guide you to really understand if this is a wise investment or not.
Knowing that the MOS is only 51% shows that this may not generate big returns in your portfolio but it may be a stock to help diversify your portfolio if you are too heavily allocated in one sector. If you do buy this stock, pay close attention to the pricing power through USPS or UPS.
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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.