Stamps.com | STMP

Shares of Stamps.com (STMP) are grossly overvalued. Just as a review of legal filings resulted in the chance discovery of Valeant’s “Big Secret,” its relationship with undisclosed affiliate Philidor, our review of scores of legal filings has resulted in the uncovering of STMP’s Big Secret – the undisclosed formula behind its astonishing financial results.

We have identified undisclosed business affiliates (e.g., IntuiShip) that STMP has aligned with to exploit legacy USPS postage reseller discount contracts to skim 100%-margin revenue from the USPS. We believe this scheme is abusive, in that it violates the spirit and intent of these USPS-issued contracts, and that it results in the cannibalization of USPS business, an expense to US taxpayers but a jackpot for STMP.

By our estimates, ~65% of STMP’s EBITDA is derived from this scheme and is at risk of vanishing. Based on our understanding of the arrangements, and certain conversations that The Capitol Forum, a well-respected regulatory research firm based in Washington DC, has had with the Postal Regulatory Commission and industry participants, we view this arbitrage scheme as unsustainable and likely to fall apart in the upcoming months.

To compound matters, for several reasons elaborated in this report, we have come to view IntuiShip and Stamps.com as essentially operating ‘as one.’ One such datapoint comes from a recent report published by The Capitol Forum, which quotes an IntuiShip employee as stating that “IntuiShip does its entire domestic small parcel shipping through Stamps.com.”

Another that we have identified is that its website redirects to www.Stamps.com! STMP has been non-transparent with shareholders, inadequately disclosing how it derives the majority of its profitability and the likelihood it could disappear; Wall Street analysts have no clue about how STMP is actually generating the majority of its financial results (STMP consistently obliterates Wall St consensus estimates), or that the aforementioned earnings stream should not be capitalized with any real multiple.

As a result, STMP has been successful in its efforts to inflate its stock price beyond reasonable measure. Based on our analysis, STMP is worth ~$15 per share.