Why The Business Card Business Isn't All That Great

Vistaprint (NASDAQ: VPRT  )  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 (NASDAQ: 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. 

Want to find a great growth stock?
Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2706508, ~/Articles/ArticleHandler.aspx, 7/29/2014 9:02:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement