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It looks like the start of the week will see the markets predictably go lower. I think the sell-off could take half the gains of October off the board by the time it is done. Given this, I am adding to my shorts. One stock that reminds me of the dot-com bust and is primed to short is (NASDAQ:STMP).

“ Inc. provides Internet-based postage solutions. Its products and services include the United States Postal Service-approved PC Postage Service that enables users to print electronic stamps directly onto envelopes, plain paper, or labels using personal computer, printer, and Internet connection; and PhotoStamps, a patented form of postage, which allows consumers to turn digital photos, designs, or images into valid United States postage. The company also sells NetStamps labels, shipping labels, other mailing labels, dedicated postage printers, scales, and other mailing and shipping-focused office supplies through its mailing and shipping supplies store." (Business Description from Yahoo Finance.)

Seven reasons STMP is significantly overvalued at $32 a share:

  1. The stock chart looks like late 1999 with a blow-off top (see chart):

  2. It is selling at the very top of its five-year valuation range, based on P/S, P/B, P/E and P/CF.
  3. Its operating cash flow has been anemic, and the stock is selling at over 100 times cash flow.
  4. It is actually producing less in earnings than it did five years ago.
  5. STMP is selling at a forward PE of 25, which is a 45% premium to its five-year average.
  6. The stock is selling at 5 times sales, despite over growing revenues about 2.5% on average over the past five years.
  7. It is priced significantly above analysts’ price targets. The median analyst price target is $25.

Disclosure: I have no positions in any stocks mentioned, but may initiate a position in STMP over the next 72 hours.