The EU’s new copyright law, which holds tech platforms responsible for potential infringement by its users, has stirred up a lot of controversy.
Our stock pick today has just been given a top score by our Money Morning Stock VQScore™ system. Multiple metrics suggest that it’s also undervalued by as much as 60%.
And that’s before accounting for the new copyright law as a major catalyst.
That’s because this law means more people and organizations are going to have to be careful about where they get their images, vectors, video clips, and music.
And this company, which serves customers big and small all over the world, is set to be the biggest beneficiary of this trend.
More than 650,000 artists – from hobbyists to seasoned pros – licensed their work through this company last quarter, serving nearly 1.9 million customers in the last year.
Those numbers – along with sales and earnings – were already on the rise. And this company would have been a “buy” even before the news from the EU.
Now it’s upgraded to a can’t-miss opportunity…
There Are 247 Million Reasons to Buy This Stock
Shutterstock Inc. (NYSE: SSTK) was founded in 2003, when entrepreneur Jon Oringer made 30,000 of his own stock photos available on the Internet for a modest subscription fee.
Today, its library contains over 247 million images, video clips, and music tracks that users can download and use in their creative projects.
Customers can subscribe to license up to just 10 images per month, or as many as 750. Or they can purchase on-demand voucher packages of two, five, or 25 images at a time. So whether it’s an individual writing a few blog posts a month or a company publishing hundreds of pieces of content every day, Shutterstock has a plan that works.
Plus, rather than having to load those images into a third-party editing app, subscribers get free access to Shutterstock Editor Pro. That lets them edit the images they license in a seamless workflow.
The company says this feature is particularly popular with small businesses that want to keep their processes quick and easy.
Making the stock photo licensing process simple is how Shutterstock has become the largest subscription-based photo agency in the world. Rather than collect work from a select group of photographers, Shutterstock pools images from sources on the Internet, working with both professionals and amateurs.
On the consumer end, it’s a much easier process than going through a traditional stock photo firm. You can sign up on Shutterstock and have a licensed image ready to upload to your website or blog in less than five minutes.
That’s part of why it’s the logical choice for anyone who is suddenly forced to comply with copyright laws.
Even better, a feature added in 2016 allows users to reverse search for images. They can upload an image onto the site, and Shutterstock will find images that are similar. No search terms necessary. That makes it easy to swap out images that were used without permission.
Shutterstock’s word search is getting better all the time, too. The company’s AI “computer vision” introduced recently is actually able to recognize collections of pixels: a cat, a bike, or a piano, for example. That way, search results aren’t just dependent on creators typing in the right keywords when they upload.
All of this explains why the copyright law makes Shutterstock a great buy. But its numbers show that it was already undervalued to begin with.
Now Is the Time to Buy SSTK
Shutterstock shares have been on the rise since Christmas, when they dropped to $32 from a peak of $55 in late September.
Shares are now trading at about $47 and showing strength. But the overall lack of growth over the last 12 months means there’s plenty of pent-up value. That’s reflected in SSTK’s fundamentals.
Sales have risen every year going back to 2009 and have multiplied more than 10 times over since then, from $61.1 million to $623.3 million in 2018. And it’s still putting up double-digit annual increases.
More impressively, net income jumped 228% from $16.7 million to $54.7 million in 2018, and earnings per share (EPS) is projected to grow another 76% between 2018 and 2022.
The reason these numbers are so strong is simple: More people keep using the service, and existing customers are relying on it more and more.
In the last quarter, Shutterstock had 46.8 million paid downloads, up 6.6% from the year before. And the 1.9 million customers who used the service in fiscal year 2018 were up 3.5% from 2017.
You can expect that trend to continue or accelerate in light of the EU’s new copyright law.
We really see the value when we look at price-to-sales ratio and enterprise-value-to-sales ratio. At 2.66 and 2.26 respectively, both are about 40% of the industry average.
That means we could see the stock price jump 150% even before the effect of the new law kicks in.
But the market probably isn’t going to overlook this one for long. So you’ll have to act fast to get these gains.
— Stephen Mack
Source: Money Morning