Invest in Simple Businesses (2) - Stamps.com Inc
My 5-minute analysis
Stamps.com Inc (Ticker:STMP)
STMP has today a stock price of $125.92 and a market capitalization (cap) of $2.13 billion!
In this post, I would like to introduce the Enterprise Value (EV) term. I use EV instead of the price of equity, i.e. market cap of $2.13 billion above because enterprise value takes into account the price we pay for the equity, which is equal to the market cap and the debt the company used to finance some of its operations.
The official definition of enterprise value is the market value of equity (including preferred equity) plus net interest-bearing debt minus cash
So that means for STMP we have $2.13 billion in market cap plus $0 of preferred stock plus $0 long-term debt plus $14.2 million capital leases (long) plus $50.2 million short-term debt plus $4.6 million capital lease obligations (short) plus $0 minority interest minus cash or cash equivalents $156.3 millions.
STMPs EV is $2.04 billion, which is actually lower than the market cap, which simplified says us that the is more cash than debt
If we now have the EV, let's calculate the Earnings Yield, which we as well used in the previous post. The pretax operating earnings for STMP for the full year of 2019 were $94 million, so the EBIT/EV is 4.6 percent or if we invert 21.7x - compare this with a P/E of ~36 (Market cap of $2.13 billion/Net Income of $59 million). Of course, the number in itself does not say much, but it is a good start!
Who says A, must say B, so if A=EBIT/EV, then B must be Return-on-capital (ROC), which is simply calculated by EBIT/(Net Working Capital + Net Fixed Assets).
EBIT we have already, Net Working Capital (without the Cash) is -$65 million, so we need to take some of the cash to cover the $65 million of short term liabilities, so we set Net Working Capital to zero, that means we have only Net Fixed Assets of $33 million!
This gives me a ROC of 285 percent, FANTASTIC!
The valuation is high, but there is so much I do not know yet about the company and the return on deployed capital is huge, so this would now need more than 5 minutes to dig into
STMPs EV is $2.04 billion, which is actually lower than the market cap, which simplified says us that the is more cash than debt
If we now have the EV, let's calculate the Earnings Yield, which we as well used in the previous post. The pretax operating earnings for STMP for the full year of 2019 were $94 million, so the EBIT/EV is 4.6 percent or if we invert 21.7x - compare this with a P/E of ~36 (Market cap of $2.13 billion/Net Income of $59 million). Of course, the number in itself does not say much, but it is a good start!
Who says A, must say B, so if A=EBIT/EV, then B must be Return-on-capital (ROC), which is simply calculated by EBIT/(Net Working Capital + Net Fixed Assets).
EBIT we have already, Net Working Capital (without the Cash) is -$65 million, so we need to take some of the cash to cover the $65 million of short term liabilities, so we set Net Working Capital to zero, that means we have only Net Fixed Assets of $33 million!
This gives me a ROC of 285 percent, FANTASTIC!
The valuation is high, but there is so much I do not know yet about the company and the return on deployed capital is huge, so this would now need more than 5 minutes to dig into
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