Stamps.com (STMP) was down massively to end the week. Total implosion here. In fact it was down nearly 60% to the $80 range. Terrible. After a great rally in 2018 the stocks been crushed. So what now?

Well what happened. The company dropped a bomb. It announced of course that it was ending its long time partnership with USPS. But that led to a massive down guide from the company. Huge. Earnings will be cut in half.

The company sees revenues of $540-$570 million revenues versus $689 million expectations from analysts. But the earnings hit was dramatic as margins will be decimated on those revenues. The company offered up a $5.15-$6.15 non-GAAP EPS vs. $10.86 expectations. So what to do?



It was devastating. What are we talking about here? Ending this partnership crushed the simple model the business had. The strategy was simply to buy as much mail traffic that was going to be handled by USPS as possible, and then skim a large profit margin by having the reseller discount be applied to it. Simple and easy. But no more.

But is there opportunity here? Over at our subscriber service, BAD BEAT Investing, we have been telling our members how we can profit on the play. But for the purposes of this note, we will share that based on managements guide.

Their guidance of 2.86-3.76, if using a P/E ratio of 22.4 reached before the announcement, implies a price of $64.06-$84.23. The closing price of $83 and change is close to the upper limit of the guidance, so there is potentially still some room for further drop, up to 23.4%, in the next few days.

In the long-run, it depends, of course, on what terms they can get eventually across various carriers, especially internationally. We think a price in the $60 range is appropriate for shares.

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