Image source: Stamps.com.
The major market indexes may have moved higher last week, but not every stock made the most of the rally. Shares of Stamps.com (STMP +0.00%) suffered a 13% hit after a subscription service raised some regulatory concerns and another publication issued a bearish report.
The Capitol Forum, a premium provider of investigative analysis, issued a problematic piece on Stamps.com, arguing that the USPS can end its service agreement with Stamps.com within 30 days if it finds abuse. The Capitol Forum feels that the USPS reseller program that has benefited Stamps.com may have outlived its usefulness.
Stamps.com fired back, telling Bloomberg that it does not believe that its service agreements with the USPS can be simply nixed with 30 days' notice. It also suggests that the integrity of the report could be compromised since the primary source in the piece is a major Stamps.com rival.
A bullish analyst also rushed to the dot-com darling's defense. Northland analyst Tim Klasell -- armed with an outperform rating and a $120 price target -- fired back later in the week. He argues that none of the seven postage resellers tasked with reselling postage through negotiated agreements account for more than 10% of revenue. He feels that any reseller moves would have a minimal impact on Stamps.com.
Another low price target
A bad week got worse after Prescient Point, a publisher of shorting recommendations, skewered Stamps.com in its latest report. Prescient Point argues that Stamps.com is gaming the system, teaming up with postage resellers in characterizing low-volume shipping customers as high-volume accounts by grouping them together.
The practice, according to the piece, is effectively skimming money from the USPS. Prescient Point feels that the stock is overvalued. "We believe STMP's usage of the reseller program is abusive and cannibalistic to the USPS," the report claims, putting Stamps.com at risk of the post office canceling its service agreement.
Prescient Point feels that the stock is worth $15, and that's a long way down. Even after last week's stumble, the stock would need to surrender another 80% of its value to hit that mark.
Worrywarts will be worrywarts. This doesn't mean that Stamps.com is doomed. Prescient Point's piece leans heavily on The Capitol Forum's piece, which if we're to believe Stamps.com's spokesman is sourced heavily from a potentially vindictive rival. However, this all ultimately stirs up uncertainty until Stamps.com rises above the doomsday scenario.
Stamps.com was one of last year's biggest winners. The stock soared 125% in 2015. The platform that started out by offering customers the ability to personalize postage stamps with personal snapshots has been able to diversify into a provider of online postage and shipping software solutions.
Revenue growth has been padded with acquisitions, but it's still coming through with healthy organic growth at both ends of the income statement. Stamps.com has also routinely obliterated market expectations, beating Wall Street's profit targets by a double-digit percentage margin every single quarter over the past year.
The accusations are heavy if they are on the mark, and the cloud of doubt will weigh on the stock in the near term. Last week was a rough one for Stamps.com investors, and now it's going to have to prove that it can deliver in the future for its stock to bounce back.
