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Why Inc. Stock Plummeted 60.9% in May

By Keith Noonan – Jun 11, 2019 at 7:26AM

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Things went from bad to worse for shareholders of the internet-based mailing and shipping services company last month.

What happened

Shares of (NASDAQ: STMP) fell 60.9% in May, according to data from S&P Global Market Intelligence. After letting investors know that it would end its exclusive relationship with the U.S. Postal Service in February, the company slashed its sales and earnings targets and guided investors for much weaker performance going forward. However, the company's first-quarter results arrived with an even dimmer outlook and more downward revisions -- causing the already-suffering stock to undergo a precipitous sell-off.

STMP Chart

STMP data by YCharts published Q1 results on May 8, and the arrival of another disappointing guidance outlook caused shares to shed more than half of their value in the day's trading. Sales for the period climbed 2% year over year to reach $136 million, but the company's adjusted earnings per share fell a whopping 51% to land at $1.23, and it looks like shareholders could be in for a bumpy ride. 

An arrow crashing into the ground.

Image source: Getty Images.

So what

When published its fourth-quarter results in February and laid out the termination of its exclusive relationship with USPS, the company put forth a full-year revenue target for sales between $540 million and $570 million and adjusted earnings per share between $5.15 and $6.15. With its first-quarter report, the company revised its full-year targets down to sales between $510 million and $560 million and adjusted earnings between $3.35 and $4.85. With shareholders already reeling from this year's big shakeups, and performance that's looking increasingly difficult to map in light of a big guidance overhaul and contract renegotiations and partnerships that has little control over, last month's big sell-off looks justified. 

Now what has regained some ground in June, with shares trading up roughly 12% in the month so far. 

STMP Chart

STMP data by YCharts

The company is valued at roughly 1.2 times this year's expected sales and 9.5 times the year's expected earnings. Now that is no longer tied to USPS, it has opportunities to pursue new partners, but investors may want to wait until substantial new deals and partnerships emerge and get the business heading back in the right direction before jumping in on the beaten-down stock. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

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