It was just last month that Indian Internet portal Rediff
Since then, however, as company management has had to erase thoughts of a merger, shares have tumbled going as low as $15 a stub -- over a 70% reversal of fortune. Even with first-quarter sales up 18% and earnings increasing 6.5%, the stock has barely budged out of its recent slump. But Rediff.com has improved its standing as the 122nd most-visited spot on the Internet, according to Alexa.com. So with a falling stock price and increasing visitors on the website, it sounds like the company may be beginning to look a bit more tempting.
But before you slake your thirst at the well, let's look to see if there's really a pail attached to the rope. You may just end up hanging yourself with it instead.
While Rediff far surpasses either the Times of India or the Hindustan Times in terms of online viewership, Rediff's traffic has been steadily decreasing throughout the year. Moreover, both Yahoo!
By comparison, Chinese portal Baidu
The key metric here, though, is online ad spending in India. Rediff's online ad revenue was only up 14% from the previous year, as the top 10 advertisers slashed their contribution to Rediff's site. The lone analyst covering the company realizes the company is hemorrhaging cash and has reduced his revenue estimates even as he reiterates his buy sentiment, all the while fomenting hope of a possible buyout. His research notes and even comments to Barron's have fueled the speculation of a white knight rescuing the investment, although management has seemingly squelched the possibility.
So even though Rediff's stock took a dive in the past few days, I still think it is trading a high premium, and any suitor would undoubtedly want to wait a bit for a better discount.
While India is an emerging market and Internet usage may become burgeoning soon, it's not being reflected in Rediff's viewer numbers, which have seen global Internet users drop 22% over the past three months. With a price-to-earnings ratio of almost 65 and a forward valuation in excess of 57, there's more than a lot of hope built into the stock's price.
The international investment landscape is not an arid wasteland by any means. Solid international opportunities abound for investors, as evidenced by the dozens of top companies uncovered by the Motley Fool Global Gains service. Yet rather than quenching their thirst, even at its current price, it looks like Rediff investors are mistakenly casting their pennies into a wishing well if they're hoping for a buyout to rescue them.
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