A Big Bet on Small Business
10/20/2010 11:29 am EST
Ian Wyatt, editor of Ian Wyatt’s $100K Portfolio, likes a multinational small-cap company that provides printing and online-marketing services to small businesses worldwide.
Small businesses have historically been the growth engine of the US economy, driving innovation and creating jobs. Businesses with fewer than 50 employees generate 50% of [gross domestic product] and roughly 70% of new jobs.
As small businesses look to grow profits in a slow-growth economy, they are seeking opportunities to increase efficiency and reduce costs.
VistaPrint (Nasdaq: VPRT) is a Netherlands-based company that provides printing services to companies with less than ten employees, and estimates that there are roughly 50 million such businesses in the US and Europe. With over 2,200 employees in locations around the world, VistaPrint is truly a global company.
While printed goods remain the bread and butter, the company is increasingly selling web site services including hosting and online marketing services to small businesses. VistaPrint currently has 240,000 businesses paying $5 - $10 per month for these types of services. While this is a small piece of the company's overall business, it appears to be an area of future growth.
The company got started in 2001 and since has grown its revenues from $6.1 million to $670 million in the fiscal year that ended in June 2010. With an impressive annual growth rate of 69% since 2001, VistaPrint is a growth story that has attracted much attention from small-cap fund managers and Wall Street analysts. Shares went public in September 2005 at $12, and have appreciated [greatly] since.
After reaching an all-time high of nearly $63 in April, [the stock has] been under pressure. In late July, shares fell from $50 to $32 in a single day after quarterly results disappointed investors. The stock subsequently fell as low as $28, before rebounding to around $38.
The company's new guidance for the coming year reflects their less opportunistic view of the global economy and issues in Europe. The negative news and outlook for slower growth scared investors, and shares deservedly got a haircut. But it would appear that the sell-off has been overdone, and shares are a good value.
The years of 30% annual growth may be in the rearview mirror for now, but this growth story remains intact and the company should be able to expand at 15% to 20% annually. In the current economy, growth rates like this are hard to come by. With sales of three-quarters of a billion dollars, the company has plenty of upside in the $100-billion commercial printing business in the US alone.
VistaPrint is a great business that has built up a sizable stockpile of $167 million in cash on the balance sheet, roughly $3.80 per share outstanding, [which] could be used for a share buyback. Back in 2008 the company bought back $46 million worth of stock at just under $18—a real bargain in retrospect.
VistaPrint shares are an attractive opportunity - assuming management is able to deliver. I'm looking for the stock [to] be back at $55 within the next year, giving investors about 50% up side from the recent share price. Buy VistaPrint below $38.