Stamps stock: Return to sender

Sell

Stamps.com Inc., the Internet-based mailing and shipping solution provider is sending short signals this holiday season. STMP offers mailing and shipping solutions through the U. S. Postal Service under the Stamps.com and Endicia brands. STMP, formally known as StampMaster, Inc. was founded in 1996 and serves individuals, large businesses, and warehouses. The El Segundo, California-based company operates multi-carrier shipping solutions and offers customized postage solutions to its customers.

STMP’s street approval, demonstrated by its substantive earnings increase, is poised for a slowdown, leading to short selling opportunities. 

STMP reported a $2.68 per share earnings increase for Q3 2017 on revenue of $115.1 million. This beat the consensus expectation of $1.91 per share in earnings on revenue of  $109.4 million, up 142% and 24% respectively. Also, STMP’s yearly earnings guidance of $9 to $10 per share versus the consensus of $8.05 will significantly project a reduction of its P/E ratio. STMP’s reported earnings and revenue did not impress investors, which adds to the negative outlook.

Competition has slowly eroded STMP’s hold on the shipping industry with Amazon’s (AMZN) entry into similar shipping and mailing business models. 

These noticeable signs of a slowdown warranting a lower P/E ratio, are a sign of holders and momentum traders exiting positions and makes STMP a short-selling candidate.  

STMP has been in an ascending mode since mid-June 2017, with two major gaps following its last two earnings announcements (see “Pick your gap”). Its overly impressive Q2-2017 earnings report resulted in a gap opening on Aug. 3 from the previous day’s close of $151.20 to $180.40. This is Indicative of a short squeeze with high volume and an increase in the Relative Strength Index to 78.9 in conjunction with the STMP stock price breaching $200 on the day of the gap open. 

Signs of overextended patterns made STMP prime for a correction. The reversal threatened to be extreme given the gap higher and the severity of the move. STMP was vulnerable when met with the news of the AMZN entry into its business model. This literally spooked investors and traders when STMP gapped lower on Nov. 3. STMP closed Nov 2. at $221.25 and opened Nov. 3 more than $25 lower at  $195.15. The stock continued to bleed settling at $171.25 with heavy volume and penetrating the 50-day moving average. 

STMP’s bearish pattern has pushed the price close to oversold territory, but it has not yet completely filled the August opening gap. Exiting is now rampant with an average bearish trend, which could find the STMP’s closing price attempting to refill the August gap from $151. This could be followed by challenging its secondary support at the 200-day MA, a breach that would leave STMP in a vulnerable position.  

Joseph Parnes has no holdings in STMP.

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