I know Rich painted me as a whiner in his opening shot. I can't say that I blame him. Now if only I could find the right hue to paint my fellow Fool as a realist. He's tricking you, just like HouseValues does to its one-shot traffic. The David Blaine of investing?
I don't mind calling him out on his sleight-of-hand gimmickry, since we go way back and have that kind of comfort level. Rich bases his metrics on the past. That's the side of the story that a HouseValues (NASDAQ:SOLD) bull would love to live in.
Let's take a more realistic view here.
"HouseValues' 53% sales growth last quarter tells you that this business isn't broken -- it's booming."
That 53% sounds great. So did the 82% top-line spurt last year. But over the next nine months, the company is looking to grow revenue by as little as 13%. This business isn't booming. It's broken.
"Analysts predict that HouseValues will grow its profits at 22.5% per annum over the next five years."
Wall Street loves to throw out lofty five-year figures because it knows that it won't be accountable that far down the line. You want something more concrete? These same analysts expect earnings to go from $0.54 a share last year to $0.28 a share this year to $0.51 a stub in 2007. That's profit growth of (3%) per annum over the next two years. That throws a wrench into Rich's valuation multiples.
"Moreover, if you net out the firm's excess cash, you'll find the business itself trades for ..."
If I can be the voice of reason here, be careful with where you place that cash mattress. It can be a bed of nails. There's a company out there called InsWeb (NASDAQ:INSW). Like HouseValues, it, too, is in the lead-generation and referral business. It actually trades for less than the cash on its balance sheet.
InsWeb isn't profitable, but it tells you what the market thinks of the cutthroat lead-generation business now that the Internet has leveled the playing field. Whether it's homes through HouseValues, insurance through InsWeb, or cars through Autobytel (NASDAQ:ABTL), these stocks are marked down for a reason.
HouseValues doesn't belong in your portfolio. It doesn't belong on the otherwise sparkling Motley Fool Hidden Gems scorecard. Come on out of that snow-globe bubble, Rich. Do you really think the company has any shot of bouncing back in a climate that will only grow more competitive?
I wouldn't hold my breath.
Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.
Longtime Fool contributor Rick Munarriz isn't interested in selling his home, even if he recognizes that the once red-hot South Florida market is cooling off quickly. He does not own shares in any of the stocks 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.
