Hoover's Picks Up Steam Bill Barker (TMF Max)
August 16, 1999
Before the opening bell this morning, three different brokerage houses all initiated coverage with "buy" ratings on Hoover's Inc. (Nasdaq: HOOV), a frequent CNBC ticker sponsor and publisher of business information primarily for distribution via the Internet. Apparently in response to this deluge of mysteriously synchronous positive coverage, Hoover's moved up nearly 20% from its Friday closing price of $12 3/8 per share, hitting an intraday high of $14 13/16 at one point in the midmorning. This move was a welcome relief for Hoover's shareholders, who had watched the stock quickly slide from its July 21 high of $33 a share, to a low of $8 1/8 per share just five days ago on August 11.
Looking at the new coverage, J.P. Morgan's analyst gave the stock a 12-month "price target" of $32 a share, Lehman Brothers opened with a "buy" and a more conservative 12-month target of $20, and Wit Capital's research simply opened with a "buy" rating but no price target. However, due to the fact that each of these three firms was an underwriter of the July 21 Hoover's IPO, the ratings and price targets should be taken with a grain, pinch, handful, pound, or truckload of salt -- depending on one's general level of suspicion about such things. Certainly it appears that the market did ultimately end up viewing the "buy" ratings with a somewhat jaundiced eye, as by the end of the day the shares did not differ markedly from the IPO offering price of $14.
Hoover's released its second quarter results on August 5, reporting that the company had lost $1.8 million on revenue of $3.2 million for the three months, translating into a loss of $0.25 per share for the quarter. Curiously, despite the fact that the business of Hoover's Online is to provide some of the more detailed and useful free financial information that individual investors can currently find, at the moment it is quite difficult for investors to get much of a feel for what Hoover's numbers are.
Glancing at the quarterly financials listed on its own website, only revenues, net income, and earnings per share are disclosed by Hoover's for the quarter just ended. No numbers surrounding the margins, sales, general, and administrative (SG&A) expenses, operating income, or anything else are yet available for the quarter. All of which makes it difficult at the moment for any interested investor to get a good gauge on whether today's "buy" ratings should be completely dismissed out of hand due to the suspect nature of the sources, or whether there might be something to like anyway in a rapidly growing company that is available for essentially the same price that IPO investors were privileged to receive.
Taking the $32 per share price target of J.P. Morgan's analyst, on the basis of 11.4 million shares outstanding, that would translate into a predicted market cap of $365 million. It is not the easiest trick to see where a company with a current revenue run rate of less than $13 million might be valued at $365 million -- especially in light of the fact that the sales are not yet profitable or close to being so. However, $365 million is almost exactly the current market cap of similar companies like MarketWatch (Nasdaq: MKTW) and Multex.com Inc. (Nasdaq: MLTX). Though Multex and MarketWatch both have slightly higher revenues than Hoover's at the moment, those revenues are not remarkably higher, and in the case of both companies, they have managed to grow their revenues even more unprofitably than has Hoover's. Given those numbers, a price of $32 is not out of the question -- but those are some selectively chosen numbers.
Similarly difficult to explain is why a price target of $32 (essentially triple the price of Hoover's before the opening bell) only translates into a "buy," rather than a "strong buy." Fools generally ignore the "buy," "speculative hold," "short-term attractive, long-term downright beautiful" ratings of Wall Street's brokerages, but it's a little hard to ignore the inherent contradictions of predicting a stock will triple in 12 months, while at the same time not giving it the highest rating available.