Don't Get Caught in InsWeb

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If watching InsWeb (Nasdaq: INSW) plummet to roughly $3 a share yesterday, after yet another disappointing quarter, has you approaching the situation as a buying opportunity, don't fall for the "cash rich" trap. The provider of online leads for insurance companies is still struggling to turn a profit. Sure, the top line is booming, having climbed 70% higher in 2005 to hit $25 million, but the bottom line has been a disaster.

For the December quarter, InsWeb's loss widened to $0.51 a share from a $0.46-per-share deficit a year earlier. The red ink is important because it eats into the company's cash balance, and that greenery has caused a great deal of frustration for value investors.

InsWeb closed out 2005 with $2.53 a share in cash and short-term investments. Some investors mistakenly assume that because InsWeb is trading for little more than its legal tender, its downside is limited. If you're feeling that way at the moment, maybe it's time to revisit what other potential investors were looking at over the past couple of years.

As My Greenery Weeps

	12/31/03	12/31/04	12/31/05
InsWeb Cash Per Share ($)	5.26	3.72	2.53

Trust me, I've been there. Two years ago, I singled out InsWeb in an article titled "Five More Stocks Under $10." The stock was trading at $4.81, and its coffers were overflowing with $5.26 a share in cash. Bargain of a lifetime? A stock worth less than its readily available dinero? Big mistake. Burning cash has been the InsWeb way, quarter after quarter.

Thankfully, three of the other four stocks I recommended in that article -- CCA Industries (AMEX: CAW), Six Flags (NYSE: PKS), and GSI Commerce (Nasdaq: GSIC) -- have trounced the market. There's an important lesson about diversification in there. And an even meatier lesson on not treating cash on a balance sheet as gospel.

Longtime Fool contributor Rick Munarriz can't recall buying insurance online, though he recognizes the usefulness of shopping around. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.