Why Shares of Stamps.com Jumped Today

MarketsMotley Fool

What happened

Shares of Stamps.com (NASDAQ: STMP) rebounded a bit on Monday after suffering a brutal decline on Friday. When it released its fourth-quarter results on Thursday, the company also announced the end of its exclusive deal to sell postage for the U.S. Postage Service. That news introduced heaps of uncertainty about its future earnings, and investors reacted by sending the stock down nearly 60% in a single day.

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There were no new developments on Monday, so this rebound may be due to some investors betting that the stock fell too far too fast. Shares were up about 18.5% at 1:56 p.m. EST, but the stock was still about 50% below its pre-earnings level.

So what

Stamps.com's fourth-quarter revenue grew by 29% year over year, and it beat analysts' consensus estimates across the board. But the good news ended there. The company's guidance called for 2019 revenue between $540 million and $570 million, along with GAAP earnings per share between $2.86 and $3.76. The midpoints of those ranges represent year-over-year declines of 5.4% and 63%, respectively.

The company warned of short-term pain as it moves to partner with multiple carriers in the wake of Postal Service's refusal to accept the company's terms for a renewal of its exclusive partnership. At this point, Stamps.com's guidance may be more of a guess than anything else. How its customers will react to the dramatic changes this will lead to is an open question.

Now what

Monday's stock-price rebound is likely just noise, and further declines from here are possible if Stamps.com can't live up to its dismal guidance. The stock still trades for around 30 times the midpoint of its GAAP earnings guidance, a lofty valuation that may not fully reflect the uncertainty hanging over the stock.

Stamps.com's growth story is now on hold, and while it will continue to sell postage, it remains to be seen if the company will be able to eventually reignite that growth without its exclusive USPS partnership.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stamps.com. The Motley Fool has a disclosure policy.