Why Shares of Stamps.com Tumbled Today

What happened

Shares of Stamps.com (NASDAQ: STMP) slumped on Thursday after the Trump administration proposed a federal government reorganization, including an overhaul and potential privatization of the U.S. Postal Service. The stock was down 10.2% when the market closed.

So what

Stamps.com offers online mailing and shipping solutions. It's core offering allows customers to buy and print USPS postage as part of a monthly subscription.

Five boxes from the U.S. Postal Service.

Image source: U.S. Postal Service.

A restructuring or privatization of the postal service could be disruptive to Stamps.com's business, although it's hard to say anything beyond that at this point. I would expect management to broach the subject in the next quarterly earnings call.

The proposal from the Trump administration may end up going nowhere, or it could change dramatically before being passed by Congress.

Now what

Stamps.com has been performing well, posting 27% year-over-year revenue growth and 42% net income growth in the first quarter. One reason for the outsize reaction to this news could be the stock's valuation. The company was valued at around $4.5 billion prior to Thursday's rout. That puts the price-to-sales ratio at close to 10, and the price-to-earnings ratio at nearly 30. The market may be concerned that changes at the post office could hamper the company's growth or knock down its margins.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stamps.com. The Motley Fool has a disclosure policy.