Shaughnessy: Micro Cap SMTP Has 125% Upside Potential
In a report issued Tuesday, Tom Shaughnessy looked into one under the radar micro-cap company with more than 125 percent upside potential: Smtp Inc (NASDAQ: SMTP).
SMTP is a New Hampshire-based, $33.6 million market cap provider of cloud-based email delivery services and other marketing technologies.
According to the expert, the company has a high growth, scalable SaaS business, and its “ace management team is leveraging synergistic acquisitions to drive significant growth.”
In fact, Shaughnessy sees two synergistic acquisitions fueling the company’s growth at a remarkable pace, and allowing it to compete against billion dollar players Marketo Inc (NASDAQ: MKTO) and HubSpot Inc (NYSE: HUBS).
These acquisitions are “complementary to each other and SMTP’s legacy relay services, deeming them powerfully synergistic.” The results of these procurements are clear, as first quarter (2015) revenues rose 120 percent year-over-year.
Let’s take a closer look at these purchases.
“The acquisition of SharpSpring was directly accretive to SMTP allowing the company to successfully compete in the marketing automation and analytics segment,” Shaughnessy explained. SharpSpring has delivered 50 percent and 45 percent quarter-over-quarter growth in each of the past two, and seems positioned to be the main growth driver for SMTP.
A 96 percent retention rate makes SharpSpring able to successfully compete with larger peers on top of a 7-1 return on marketing.
For its part, the purchase of GraphicMail has provided SMTP with a stronger position in the newsletters, promotions and basic email services segment, the expert noted. “More specifically, the business provides an international sales channel for SMTP to up-sell SharpSpring through,” he added.
The report presents three possible scenarios for SMTP. One assumes an 80 percent gross margin driven by acquisition synergies; in this set-up, SMTP could deliver earnings of $0.25 per share in FY16’ he said. This would amount to a return to stockholders of approximately 125 percent, on a 50x P/E ratio.
Another scenario listed stipulates SMTP should be conservatively valued at 4.5 times its sales by the end of FY16’. This would result in a market cap of more than $83 million, which represents a 125 percent upside potential too.
A third scenario plays with the idea of SMTP being acquired by one of its direct competitors within the next couple of years, as it is “directly complementary and already competes with Marketo and Hubspot.”
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