This Mega-Shareholder is Buying VistaPrint, Should You?
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
VistaPrint (NASDAQ: VPRT) is a web-based supplier of printing and marketing services to a range of customers, primarily to small businesses and consumers themselves. Originally founded in 1995 by current CEO Robert Keane, VistaPrint was created to offer printing solutions at volumes below the minimum order requirements of companies like Staples (NASDAQ: SPLS)and OfficeMax (NYSE: OMX). Amid the height of the tech bubble, VPRT began to expand its operations online, though its most profitable period has been since the company’s IPO in late 2005. Presently, VistaPrint operates more than 20 regional domain names tailor-made to different areas of the world.
In 2012, the stock has returned a modest 5.5 percent, while the marketing services industry as a whole has shrunk by more than 13 percent. Now, the returns of VistaPrint’s competitors, specifically the likes of SPLS, OMX, Office Depot (NYSE: ODP), and FedEx (NYSE: FDX) have been mixed, though its worth noting that VPRT has outperformed each of by a significant margin over the past week, popping more than 4.8 percent. In a time of dismal economic data, and a possibly devastating LIBOR scandal (read our report here), VistaPrint has provided investors’ portfolios with a much needed boost, provided they caught the bull before its recent run.
Interestingly, much of these post-Independence Day gains may be a result of one particular round of purchasing activity by Thomas W. Smith, who is classified as a “large shareholder” on the SEC’s Form 4 filings. With over 800,000 shares of VPRT worth an estimated $25 million held in his portfolio, Smith is giving much more love to VistaPrint than the other companies he is involved with, most notably World Acceptance Corp and Copart. Now, the question is, why is Mr. Smith so bullish on this particular printing company?
Well, for starters, VistaPrint has seen its financial strength improve significantly post-recession, with revenues (26.8%) and earnings (28.1%) growing at double-digit rates on an annual basis. Both averages are markedly above the industry averages and most of its larger peers, but the real kicker comes when looking at the company’s valuation metrics. Currently, shares of VPRT are trading at a Price-to-Earnings ratio (24.2X) far below its 5-year (32.7X) and post-IPO (43.6X) historical averages, despite the fact that yearly EPS figures hit an all-time high of $1.89 a share in 2011.
In fact, VistaPrint’s earnings have traditionally traded at a 145 percent premium to those of the S&P 500. This year, they appear much cheaper, trading at just a 66 percent premium. This historical undervaluation of nearly 8,000 basis points is oodles larger than competitors like SPLS (-4,900bp), OMX (-1,600bp), ODP (+400bp), and FDX (-2,100bp). When growth is factored into the equation, a similar story is told, as the shares of VPRT are trading at a PEG ratio of 0.8; typically any figure below 1.0 signals the markets have not priced a stock for its full growth potential.
Now, the company did see its bottom line decline quite handily last quarter, by 98.8 percent to be exact, but year-over-year revenues were up more than 20 percent. From an adjusted standpoint, VistaPrint’s EPS of $0.29 handily beat the Street’s estimates of -$0.09 a share, but ardent investors would be wise to monitor the company’s next earnings report on July 26th.
Looking at cash hoards over the past year, VPRT has posted an impressive gain in the free cash flow (159.0%) arena, outpacing SLPS (14.9%), OMX (-220.0%), ODP (103.0%), and FDX (36.4%). Despite this advantage, its shares are trading at a lower Price-to-Cash Flow ratio (8.4X) than its own 5-year (13.1X) and post-IPO (9.4X) averages. Using the PCFG ratio, which is calculated in the same manner as the PEG, we compute a PCFG of 0.4. For a refresher course on how to compare these ratios, check out our educational series at your leisure.
Now, it is the combination of VistaPrint’s earnings and cash flow undervaluation that may have some bulls – including Thomas W. Smith – licking their chops. WealthLift’s Sentiment Index does rate VPRT as a hold, with the community’s users fairly split on what the future may bring. If the company is able to impress in its fourth quarter earnings release next week, a positive market reaction could bring it to a fairer valuation. To monitor this situation, check back at WealthLift INSIDER.
WealthLift has no positions in the stocks mentioned above. The Motley Fool owns shares of Staples. Motley Fool newsletter services recommend FedEx, Staples, and Vistaprint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.