Why The Business Card Business Isn't All That Great

Vistaprint (NASDAQ: CMPR  )  supplies customized printed products to small businesses. Chances are you've seen a business card they've printed, whether you know it or not. Yet, the company has a number of headwinds, with the most notable being that small businesses are fickle. Vistaprint's ability to convince small business owners to open up their wallet is dwindling. As a result, the company has seen steep declines in earnings. EPS went from $1.89 in 2011 to $1.16 in 2012, and finally $0.89 in 2013.

Small business pressures
Vistaprint offers graphic design services and customized printed products to small businesses and consumers. The key is the 8 million small businesses the company serves. It offers a variety of products, which include business cards, brochures, websites, and checks.

Unfortunately, small businesses are highly susceptible to the broader economy. And the recent trends suggest continued weakness in the broader economy, where the housing market appears to be cooling, and unemployment remains at relatively high levels. What's more is that Vistaprint offers no downside protection with a dividend. Meanwhile, major print peer Deluxe  (NYSE: DLX  ) pays a 2.2% dividend yield, and RR Donnelly (NYSE: RRD  ) pays an impressive 6.2% yield. 

One of the other issues with Vistaprint is that it has to spend a lot of its revenue on marketing to attract new customers. Vistaprint has seen its marketing expenses go from 33.3% of revenue in 2011 to 38.2% in 2013. This has reduced its net income margin from 10% to 2.5% over that same time period.

Stacking Vistaprint up
Just take a look at some of the other print-focused companies, RR Donnelley & Sons and Deluxe Corporation. Both of these companies are check-printing leaders. If you order checks through your bank, there's a good chance they are from RR or Deluxe. But the problem is that the check-printing business remains in decline, as the move to electronic payments continues to rise. .

As a result, Deluxe is expected to grow EPS at only 7.5% annualized over the next five years, and RR Donnelley at 2%. However, one positive for Vistaprint is that it has other "marketing" products that it can sell to businesses to help offset the decline in check cashing. Even still, as mentioned, its exposure to small businesses remains troubling.

Bottom line
Vistaprint already has 30% short interest, and its valuation is a bit "scary," considering it trades at 61 times earnings. Compare this to the company's five year average P/E of 30 times. Meanwhile, you have Deluxe trading at 13 times earnings.   Owning the company seems a bit risky given its exposure to "printed" marketing products, such as business cards and catalogs. This form of marketing is going by the wayside. The stock is trading too high, and it doesn't have the growth prospects to justify its lofty valuation. 

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