The Big Money Says to Buy VistaPrint

One of the great maxims of traders and Wall Street pros is to follow the "smart money."

I'm not much for the thesis that institutional shoppers tend to make smarter investing decisions, but many of you who've read my ruminations on insider buying say you'd also like to know how the Big Money is betting. Your wish is my command.

Next up: VistaPrint (Nasdaq: VPRT  ) . Are institutions bullish or bearish when it comes to this online provider of customized graphics and printing services?

Foolish facts

Data current as of Dec. 10.

If you're at all like us, you have a ton of digital photos waiting to be organized into scrapbooks. Trouble is, you probably don't have time to do the necessary work, and you wouldn't know where to begin anyway. VistaPrint helps solve this problem.

The company offers a wide variety of personal and business printing services via its website. From wedding invitations to business cards, VistaPrint offers stationery services that for years have been the hallmarks of, well, Hallmark and office suppliers Staples (Nasdaq: SPLS  ) and Office Depot (NYSE: ODP  ) .

So far, it's been a good business. VistaPrint has grown revenue by more than 25% annually in each of the last three years, and by more than 50% from 2006-2008. Return on assets, capital, and equity are all in the double-digits. For these reasons and more, my Foolish colleague Andy Louis-Charles added VistaPrint to our 11 O'Clock Stocks portfolio over the summer.

"While VistaPrint didn't invent the online printing business, it's out to dominate it. By the company's own estimates, they are multiple times larger than their closest competitor," he wrote in recommending the stock.

Institutional ownership history

Source: Capital IQ, a division of Standard & Poor's.
*Indicates the number of shares owned.

That's the sort of story that plays well on the Street. Institutional buyers have purchased millions of shares even as the stock has fallen more than 20% year-to-date. They're betting growth hasn't gone away.

Fund managers might also like the valuation. VistaPrint trades for about 20 times next year's profit, attractive given the 20% annual five-year earnings growth analysts expect. Growth stocks typically aren't that cheap.

Competitor and peer checkup

Source: Capital IQ. Data current as of Dec. 10.

But "cheap" is a relative term in VistaPrint's case. If analysts prove to be wrong about its growth trajectory, the stock will start to look expensive, and investors will sell.

More than a few believe we'll see exactly this outcome sooner rather than later. According to Capital IQ, 5.7 million, or 13%, of the company's shares outstanding have been sold short. That's up almost 28% in just two days.

Normally, I'd hate to see so much institutional ownership. But in VistaPrint's case, high short interest may help to explain the numbers. Borrowed shares can artificially inflate ownership data. Here, the skewed ratios may be good for bullish investors.

Why? If VistaPrint exceeds expectations, short-sellers may be forced to cover. The ensuing wave of buying would push the shares higher and reduce the number of open short positions -- especially uncovered, or "naked" short positions. That, in turn, would help clarify ownership data. Both the company and its owners win.

Do you agree? Disagree? Let us know what you think using the comments box below. You can also recommend other stocks for me to evaluate by sending me an email, or replying to me on Twitter.

Interested in more info on VistaPrint? Add it to your watchlist by clicking here.