Despite the ease and popularity of online communication and electronic bill payment, there is still a need for postal mail. Stamps.com
An impressive quarter
After posting some very impressive quarterly numbers, Stamps.com surged more than 26%, ending trading close to a new 52-week high. Net income for the recent quarter was up 52% over the same period last year, with revenues up 20%. The largest segment of this growth was in its PC postage business, the corporate segment of its business. By focusing on corporate and small-business accounts, Stamps.com should remain the leader in this small but growing industry.
Is growth ahead?
The U.S. Postal Service is a bureaucratic behemoth, an organization on the brink of bankruptcy. However, like the government's continued investment in the losing proposition that is Amtrak, the post office will be allowed to survive. As it executes cost-cutting measures, such as closing smaller post offices or stopping Saturday delivery, there is room for other companies to sell consumers postage.
It is not easy to become a licensed PC postage vendor. It takes around two and a half years to gain approval, and the USPS has not approved a new PC Postage vendor since 2000. Currently, there are only three approved PC postage vendors: Stamps.com, Pitney Bowes
Who are these customers?
Stamps.com targets home offices, small businesses, and high-volume shippers with its PC postage service. For example, a person operating a home-based eBay
According to the USPS, postal service revenue in fiscal 2010 was $67 billion. Approximately $48 billion was represented by classes of mail that Stamps.com offers through its service. Even if postal revenues decline, Stamps.com is positioned to continue to make money as long as businesses need to send items through the mail.
What it all means
Because of its recent price surge, Stamps.com looks very expensive with a P/E over 30. That said, with projected EPS growth of 18% over the next five years, this number should continue downward in the future. The company has returned nearly $258 million to shareholders since 2002 in the form of special dividends and share repurchases, including a special dividend as recently as the fourth quarter last year. Finally, it currently has no debt on its balance sheet, giving the company room to borrow should it need to in order to grow further and gain more market share.
What do you think?
Stamps.com's recent performance moved it closer to becoming the perfect stock. If you are intrigued by the potential of this stock, I urge you to keep an eye on future developments by clicking here to add Stamps.com to your free stock watchlist.