Throw This Stock Away

I should get some business cards to promote this weekly column.

I'll customize the cards with gothic graphics on dark stock. I'll add "Serial Pessimist" beneath my name, even though I don't think this column makes me Wall Street's Grim Reaper. After all, I do end every weekly bashing by proposing three perfectly worthy stocks as portfolio replacements.

This week I'm going to go after the very company that I would probably turn to for printing these cards.

Who gets tossed out this week? Come on down, Vistaprint (Nasdaq: VPRT  ) .

All the bad news that's fit to print
Vistaprint is an unlikely success story from the days of the dot-com boom. This was the same company that wallpapered the Web with its ads for business cards and address labels.

The delicious twist in the Vistaprint story is that the company is more than just a survivor. It has thrived as a low-cost provider of corporate products, including branded pens, brochures, car magnets, and its ubiquitous business cards.

"Financially speaking, Vistaprint is profitable and growing," I wrote in defending the stock 18 months ago. "This may seem like a low markup business, but the company generated double-digit net profit margins on a huge 64% revenue gain this past quarter. With 39% of its business coming outside of the United States, it's not as if the company's fortunes are tied explicitly to domestic brand merchandising."

The stock is trading sharply higher today, even though its torrid growth has slowed considerably. Sure, it's great that Vistaprint is still growing during a brutal recession, but that resiliency has already been baked into the share price.

Since bottoming out in November, Vistaprint's stock has more than quadrupled. The prospects for fiscal 2010, which ends in June, are admirable. Earnings and revenue are targeted to grow by 15% and 21% respectively. However, Vistaprint's run finds it priced at 30 times trailing non-GAAP earnings and 26 times forward profitability.

Investors have marked up the stock as Vistaprint expands into new areas. Photo books sound great until one realizes that niche pioneer Shutterfly (Nasdaq: SFLY  ) is barreling toward a loss this year. Offering corporate clients email management and Web hosting makes sense, but there are companies out there doing things better.

As a contrarian, I backed the unloved Vistaprint last year and I was vindicated. I'm in those same contrarian shoes today, by now turning my back on the suddenly popular company.

It happens.

Good news
As I do every week, I don't talk down a stock unless I have three alternatives that I believe will outperform the company getting tossed. Let's go over three new fill-ins.

• Rackspace (NYSE: RAX  ) : Vistaprint offers instantly created websites for neophyte businesses for as little as $4.99 a month. That may sound like a good deal, but the days are numbered for cookie-cutter placeholder sites created by Vistaprint and Intuit's (Nasdaq: INTU  ) Homestead. Folks who want a basic online presence can now do that for free through Facebook and MySpace profile pages. When companies need some serious hosting -- when no free blog or social-networking fan page will suffice -- they turn to Rackspace. With 70,800 serious and dependable hosting clients and a fast-growing platform for cloud computing apps, Rackspace is growing in an otherwise cutthroat business.
  
• Constant Contact (Nasdaq: CTCT  ) : Managing email and online surveys is Constant Contact's domain. If you think Vistaprint's growth in a corporate downturn is impressive, you'll love this company. Revenue soared by 49% in Constant Contact's latest quarter. The company now watches over 304,800 email marketing customers. The bottom line hasn't been as kind, although the company does expect a modest non-GAAP profit this year. This is a truly scalable business, so it's no surprise to see analysts targeting earnings to more than triple next year on a 36% revenue push.
  
• Staples (Nasdaq: SPLS  ) : Office-supply chains have naturally struggled through the business-space slowdown, but at least Staples is profitable. The same can't be said for Office Depot (NYSE: ODP  ) and smaller Staples competitors. I like Staples as a proxy for the economic recovery, as well as for its ability to take on Vistaprint with localized print services. Analysts see Staples earning $1.12 a share this year and $1.36 a share next year. Fetching 17 times next year's projected net income is reasonable for the retailer, which has proved that it can be the last office-supply chain standing if it had to be.

Sorry, Vistaprint. I'll forward you my optimism's new address for my next order of mailing labels.