Today's earnings news from Travelzoo
Revenues for the fourth quarter did travel 102% higher, and net income soared 281% from the same period last year. The pre-tax profit margin, reflecting the high margins available from Internet-based businesses, was a strong 36.5% -- yes, higher than that of venerable Microsoft
But what's catching investors' attention is a Securities and Exchange Commission investigation of insider trading. The company does not believe the inquiry will involve anything that would affect financial reporting or operations, although it will include looking at the trading of the CEO, who owns more than 80% of the company's stock. The combination of earnings coming up short of analyst expectations and the SEC inquiry has sent the stock down as much as 23% today.
The SEC is no stranger to Travelzoo, having initiated an ongoing investigation into Travelzoo's private placement last November.
For investors, though, Travelzoo was a 2004 story stock. From a March low of $7.50, the stock skyrocketed to $110.62 just after Christmas -- and now trades short of $60 a share. Who says you need to own Six Flags
One reason for that roller coaster is that investors are torn between an Internet company with actual profit and whose revenue and earnings continue to see strong growth, and a company whose stock is valued at close to $1 billion on around $30 million in trailing 12-month sales and $4 million in income. What has inspired short sellers to sell a whopping 1.5 million of the company's tiny 2.1-million-share float (87% of the shares are held by insiders) is likely this: Even at today's price, the stock is selling for around 200 times earnings. Yikes.
While analysts expect next year's earnings to almost double, a doubling still leaves the stock selling for a stratospheric 82 times forward earnings. For a rough comparison, fast-growing giant eBay
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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.