Shutterfly (SFLY) Undervalued and Prime for Growth

Shutterfly (NASDAQ:SFLY) is the current leader in the online photo, card, albums and stationery market. It helps consumers relive special photo memories and share them with friends. This business contributes about 95% of the company’s stock price. It competes with HP’s (NYSE:HPQ) Snapfish, Kodak’s EasyShare Gallery, American Greetings’ Photoworks and Apple’s (NASDAQ:AAPL) new photo sharing feature in iOS.

However, consumers have repeatedly demonstrated their preference for Shutterfly. The company grew from four million customers in 2010 to six million this year. Trefis estimates that total customers will grow to 16 million by the end of the forecast period. In addition, the price per order will grow from $33 today to $46 at the end of the Trefis forecast period. Based on these metrics and an average of 1.9 orders per customer, revenue may approach $1.4 billion in 2018. This total represents great growth prospects from the present approximately $400 million in revenue today.

Company Currently Undervalued

Trefis estimates that Shuterfly’s stock is heavily undervalued at the current market price. In fact, the $1.4 billion in revenue for 2018 is about the total current market capitalization. While the stock exhibits a fair amount of volatility, the Trefis Team analysis implies that it’s a good long-term investment.

In the third quarter Shuterfly produced a modest negative income of -$0.29 per share. While Shuterfly will be just barely profitable for the year, it has a 46% gross operating margin which allows for enough room to build better profitability in the future. The company should be able to increase its profitability as it increases its scale. Although the stock has been quite volatile, it maintains the potential for excellent performance.

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