VistaPrint Looks Solid (VPRT)

| About: Cimpress N.V. (CMPR)
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Story: VistaPrint (VPRT) is a leading online printer, with a worldwide presence, and 5.5M customers. They are targeting the small business market with small print runs, using advanced computerized presses that allow grouping of small print jobs together, thereby offering cheap prices for small runs. They offer design service as well. They have a pretty good targeted advertising campaign (offers through business credit cards, inserts with electronic purchases, etc.) so awareness will probably increase. This can be an underserved market, and a fragmented market.

Company: From the Q3 2005 report of 9 Nov 2005, assets have increased by $62.868M to $128.8M Q/Q, almost all of that from their IPO, so they are not hemorrhaging in any other respect. Liabilities are flat at about $16M, or 12.5% of assets. Solid balance sheet. Revenue growth 61% Y/Y ($28.898M/$17.861M).Operating income went from ($20.3M) to $3.4M Y/Y. The 2004 loss was due to a contract termination. Without that one-tine event, quarterly operating income went from $0.767M to $3.4M Y/Y, a 4.4x increase, but from a very small base. Continuing operating expenses went from $17.094M to $25.503M an increase of 49% Y/Y, so revenue is growing faster than operating expenses - just the sort of thing we look for. In fact, operating margins increased from 4.2% ($0.767M/$17.861M) to 11.7% ($3.395M/$28.898M) a 7.5% expansion, which is great. They are fully funded from operations, and the IPO proceeds are a bonus - just the type of business plan that deserves to come public. Solid.

We'll do a typical linear projection. At current growth rates, revenue for Q3 2006 will be $46.5M (1.61x28.898M), operating expenses will be $38.0M (1.49x$25.503M), giving quarterly operating earnings of $8.5M and an operating margin of 18.3%, a further 6.5% expansion. This same model would give annual revenue of $150.8M($28.898M*(1+1.203+1.406+1.61)), annual operating expenses of $127.0M ($25.503*(1+1.163+1.327+1.49)), and annual operating earnings of $23.8M ($150.8M-$127.0M).

Diluted shares outstanding have gone from 11.358M to 14.317M Y/Y, a 26% increase. Assuming the same share dilution gives 18.05M (14.317Mx1.26) shares probable in Q3 2006. Using the projected annualized operating earnings and shares outstanding gives a projected operating EPS of $1.32 ($23.8M/18.05M).

Stock: VPRT came public at the end of October at $12, opened around $15, and could have been had easily for around $14. Since then it has rallied to around $22. At their current price, and using our projected operating earnings, and including the projected share dilution, that gives an operating P/E of 16.6($22/$1.32), which is right in line with the market multiple. Arrggh. VistaPrint seems to have been a good solid purchase at $14, but at $22 seems fully valued. I missed this one, and it doesn't seem too compelling at current prices.