FindWhat.com: A Year Later

One of the many reasons that our new Stocks 2005 publication has been drawing investor interest is that all 11 picks of Stocks 2004 have produced positive returns over the past year. In fact, all but two actually beat the market.

My contribution last year was paid search specialist FindWhat.com (NASDAQ:FWHT). It seemed like a capable stock pick at the time. The stock was trading at just $13.99 and with Yahoo! (NASDAQ:YHOO) relying so strongly on its Overture acquisition to drive profits and Google (NASDAQ:GOOG) set to go public, paid search was just begging to get noticed.

FindWhat was lurking in the shadows but I wouldn't have necessarily classified it as all that speculative. In fact, the company had produced a profit every quarter since the summer of 2001. It was also in the process of making some savvy acquisitions before the market's desire to ride Google's coattails would have driven up the asking prices on its purchases.

The pick paid off. Yesterday the shares closed at $19.60, 40% higher than when the stock was singled out in Stocks 2004. The company's fundamentals have earned the attention. Earlier this year FindWhat.com was looking to earn $0.60 a share in 2004 on $95 million in revenue.

While the company's corporate buys now find the top line angling toward a padded $170 million in revenue, prospects for the bottom line have also improved. FindWhat expects to earn between $0.60 and $0.63 a share this year. If you back out the amortization expenses of its acquisitions, those sums clock in a dime per share higher.

It's not just Google and Yahoo! cashing in on the booming paid search market. From InfoSpace (NASDAQ:INSP) to Ask Jeeves (NASDAQ:ASKJ) to LookSmart (NASDAQ:LOOK), there are many active companies selling effective contextual text ad space to a growing field of willing sponsors.

While I have chosen a much larger company for the new Stocks 2005 collection, it too is a company whose proven assets and earnings potential I believe have been vastly underestimated by the market. How will it this one fare? Let's talk again next year.

Have you ever paid for a text ad on a search engine? How does one start? Which sites are effective? Are the portals that charge as little as a penny worth it? All this and more -- in the Webmaster's Corner discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz has been a vocal fan of the paid search providers, but he does not own shares in any of the companies mentioned in this story. He is a member of the Rule Breakers analytical team, seeking out tomorrow's great growth stocks today.