Mamma Waters Down Juice

I've got to admit, I'm pretty skeptical of Mamma.com (Nasdaq: MAMA). First, there's the cheesy name and even cheesier slogan. The "mother of all search engines?" Come on, folks. Saddam made the mother-of-all phrase famous back in the early '90s, and it's about as fresh as the dictator's clothes were when they yanked him out of that spider hole.

Recent enthusiasm for Mark Cuban's investment in the firm also baffles me. Sure, Cuban did great when he convinced Yahoo! (Nasdaq: YHOO) to spend billions on a technology that, as he reportedly described it, turned a $2,000 computer into a $5 radio. But that doesn't mean he's always right, and as W. D. Crotty pointed out, he can afford to lose a lot more than we can.

But results speak, and like keyword-hawking peers Stocks 2004 pick Findwhat.com (Nasdaq: FWHT), Yahoo!, Ask Jeeves (Nasdaq: ASKJ), and Google, Mamma's been making some bread lately. Last quarter saw good gains, and revenues doubled last year, but unfortunately, the number of shares outstanding nearly did as well.

And that's why we're here today. Tuesday, Mamma announced yet more dilution in the form of a 1.5 million share private placement -- plus the option to grab another 600,000. There you go, kids. Your piece of the action just got 10% to 15% smaller.

Investors responded by dropping the shares 8.5%. I can't blame them. They're probably getting tired of sharing their meager goodies with overgenerous insider grants and favored newcomers. And for what? How about some "aggressive" pursuit of acquisitions and mergers? Mamma was already sitting on $4.5 million in cash, with a new-and-improved, high-margin business model. You'd think she'd want to take a breather, or at least spend a little time making the easy bucks. Apparently not.

The dilemma for investors is whether to join Mamma for one wild ride. So long as she's packing a P/E ratio north of 180, dragging in lumpy revenues, and giving my cookies to the neighbors, I think I'd have to sit this one out.

Looking for small caps that don't sport such heinous rates of shareholder dilution? Try one of Tom Gardner's Hidden Gems .

Fool contributor Seth Jayson sold his Findwhat.com stake far too early (doh!), and he has no position in any company mentioned. View his Fool profile here.