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Cimpress (CMPR) Displays Bright Prospects, Risks Remain

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Cimpress (CMPR) Displays Bright Prospects, Risks Remain

Steady investments in new markets are likely to drive Cimpress' (CMPR) organic growth. Higher costs pose a concern.

On Sep 17, we issued an updated research report on Cimpress N.V. CMPR.

In the past year, this Zacks Rank #3 (Hold) stock has yielded a return of 43.1% compared with the industry’s growth of 15.2%.

Let’s delve deeper and discuss the company’s potential growth drivers and possible headwinds.

Of late, Cimpress has been focusing on digital marketing services comprising websites, email marketing, online search marketing and social media marketing. We believe that the company's web presence and online tools for customer use are well established. Also, it is making steady progress with investments in new markets and the business strategy is now focused on higher quality products and delivery, increased customer service and more transparent pricing. 

Also, Cimpress has been acquiring firms with complementary product offerings and expects to ramp up its revenues with operating synergies through economies of scale and technological collaboration to serve a wide spectrum of customers across the world. The company's product line has expanded to include a wide variety of offerings for its customers' marketing needs. All these augurs well for its long-term growth.

Moreover, the company’s management has implemented a radical change in the organizational structure by decentralizing operations in order to improve accountability for customer satisfaction and capital returns, simplify decision-making and improve the speed of execution. The evolved corporate structure will likely lead to more accountability as the company expands its wings in new geographical boundaries and markets to strengthen its position as a leading provider of mass customization business products.

However, Cimpress is currently dealing with rising cost of revenues. For instance, in the fourth quarter of fiscal 2018, the company's cost of revenues increased 13.4% year over year and jumped 23.2% (CAGR) in the last five fiscals (2014-2018). Gross margin was down 70 basis points (bps) in fourth-quarter fiscal 2018 while decreased 80 bps in fiscal 2018.

Further, increases in debt levels can increase the company’s financial obligations. In fiscal 2018, its interest expenses increased 20.6% year over year. This apart, headwinds in currency translation could add to the woes as the company generates almost half of its revenues outside the United States.

Key Picks

Some better-ranked stocks in the same space are Altra Industrial Motion Corp. AIMC, Brady Corporation BRC and IDEX Corporation IEX. While Altra Industrial Motion sports a Zacks Rank #1 (Strong Buy), Brady and IDEX carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, delivering a positive average earnings surprise of 4.01%.

Brady exceeded the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive earnings surprise of 5.20%.

IDEX outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 4.37%.

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