I really do feel for anybody who held VistaPrint (Nasdaq: VPRT) in late April and/or last week, when the stock got smacked by disappointing guidance. I am not making fun of those people, but this stock is Exhibit A in why I can be pretty stubborn about sticking to my valuation principles.
Simply put, I really liked the business here (providing on-demand marketing and printing services for small businesses), but I thought the idea of paying $60 a share for it was mad.
In many respects, the results they just reported were not that bad. Revenue was up 22% to $164M, and came in about $5M light of consensus. Gross margins were up a bit (about 50bp), though higher ad spend took a bite out of the EBITDA margin (down 290bp yoy). All in all, EPS of 0.38 was actually a bit better than the 0.37 estimate.
Guidance, clearly, was a big issue. For September, the company put out a midpoint number of $162M, when the average guess was $173M, and EPS of $0.30 versus the consensus of $0.46. At that point, it was "look out below" for the stock.
Truth be told, nothing at VistaPrint is really surprising me right now. Results in the small/medium business category are pretty mediocre. Okay ... who is surprised by this? Look around the country and you do not see obvious signs of recovery, let alone strong recovery. Likewise, analysts were apparently disappointed to see that the company's national ad campaign did not really boost business.
Again ... why the surprise? This is a really rough time for small businesses, so how is a splashy campaign really going to change things? If you are struggling to meet payroll and facing the idea of having to cut employees, no ad campaign is going to get you to reach too far into your pockets.
Moving on, international revenue was stronger (up 31% in local currency). Also, the company saw a double-digit increase in new customers (up 14%), a strong increase in average daily orders (up 20%), and a modest uptick in average order value (up 4%). Those all look pretty good to me.
So, now what do we do about the stock?
Here are my basic inputs and assumptions:
Revenue - growing to $1,250 million in 2015 (13% 5-yr CAGR)
Free cash flow margin - growing from 7.8% this past year to 15% in 2015
Discount rate - 11%.
Run all that, and I get a valuation of $49.75. Drop the FCF% to 12.5% and that moves down to $43.
Either way that is not bad relative to today's price. Now, the stock is likely to have a tough row to hoe in the near-term - the company is going to be spending more and that is going to hurt margins. But I think there is a decent chance of this company leveraging an economic recovery in the small business sector.
So, maybe it is a "watch and wait" for now, but I certainly like the stock a lot more at $34 than I ever did at $60.
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