Stamps.com Inc. (STMP) shareholders woke up to catastrophe on Friday morning after the company abandoned an exclusive partnership with the U.S. Postal Service, forcing the company to sharply lower fiscal year 2019 guidance. Numerous downgrades followed the shocking disclosure, with many analysts dumbfounded by the self-inflicted wound while hoping that it benefits the company's long-term business objectives
The news dumped Stamps.com stock a staggering 54% at the opening bell, gapping down from Thursday's close near $200 into the low $90s. Worse yet, the massive haircut failed to stir bottom fishing, stretching the loss to 58% at the closing bell. Shareholder lawsuits will now keep company lawyers busy into the foreseeable future while Stamps.com begins the arduous process of cutting deals with other shipping companies before remaining investors head for the exits.
Boutique investment firm Maxim Group summed up Wall Street concerns, stating that Stamps.com no longer warrants a high multiple. Bearish mid-day action may have solved that issue for now, with the one-day crash squeezing the forward price-to-earnings ratio (P/E) under 7.00. Most analysts also agreed that a quick contract agreement with FedEx Corporation (FDX), Amazon.com, Inc. (AMZN) or another major shipper would greatly improve extremely negative sentiment.
STMP Long-Term Chart (1999 – 2019)
The company came public at $26.26 in June 1999 and rallied above $100 less than one month later. It stalled at that level for four months and turned higher, topping out at $197 in November. That marked the highest high in the next 17 years, ahead of a brutal decline that dropped the stock into the single digits after the internet bubble burst. It posted an all-time low at $4.20 following the Sept. 11 attacks in 2001 and bounced, stalling in the upper $30s in 2006.
A decline through the 2008 economic collapse held above the 2001 low, bottoming out at $7.14 in November, ahead of a slow-motion bounce that reached the 2006 high in 2013. The stock broke out a few months later, but momentum failed to develop until a 2014 buying surge that carved multiple waves, finally reaching the 1999 high in the summer of 2017. A breakout into 2018 added nearly 100 points into June's all-time high at $286.
The stock sold off into November, failing the multi-decade breakout, while a recovery wave into February 2019 stalled at new resistance. It was trading less than two points above the 1999 high ahead of the news, highlighting the harmonic nature of historic highs and lows, and plunged more than 114 points into Friday's close. The monthly stochastics oscillator crossed into a buy cycle before the big gap and crossed back into a sell cycle by the closing bell.
A Fibonacci grid stretched across the 10-year uptrend highlights the breakdown through the 50% retracement and 50-month exponential moving average (EMA) at $146, generating heavy resistance that is likely to repel recovery efforts for months or years, while the decline also violated the .618 retracement at $113. The 200-month EMA has narrowly aligned with the .786 retracement level in the mid-$60s, identifying a high-odds downside target in the coming weeks. A long-term buying opportunity could set up at that level, given its importance and narrow alignment between technical elements.
STMP Short-Term Chart (2016 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator highlights extensive technical damage, dropping through the 2006 high (red line) to a 21-month low after Friday's session posted a record-setting 13.6 million shares. Even so, it's still holding above deep lows posted in 2016 and 2017, offering a small ray of hope to shareholders licking their wounds after last week's profit destruction. Unfortunately, that isn't likely to help in the short term, with another 20% downside possible in the coming weeks.
The Bottom Line
Stamps.com stock lost more than half its market value in Friday's session after the company voluntarily abandoned an exclusive and profitable U.S. Postal Service contract.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.