Read the record.
foolwest.fool.com
WHERE TO FROM HERE?
Key West Securities, a market maker, issued a bearish take on K-tel a few days into the rise.
"When the hysteria dies down and the volume dries up, the stock should settle to a more
appropriate range between $5 and $7," the firm's chief analyst Anthony Elgindy noted. "This
could happen very quickly based on earnings and book value."
The next day, after apparently taking into consideration how ill-placed that last remark was in
light of the market valuations of the profitless CD-Now and N2K, Elgindy retraced his steps and
retracted his words. K-Tel was now the "best value" among its competitors, and, despite the
sector being overbought, Key West issued a "buy" rating with a $30-$50 price target. I did
mention Key West was a market maker, right?
Well, swaying one analyst and a legion of new believers has been pretty easy. The bigger
question is can the consumer be swayed? K-tel has a brand name, but the association of that
name with a cutting edge Internet vendor is questionable -- and the company is behind the
competition in Web presence.
Yet K-tel is taking a different if not more traditional path to winning over site surfers. Whereas
N2K and CD-Now are quick to enter into million dollar marketing deals with popular Web
search engines, K-tel will focus primarily on its existing customer database -- the core is not only
mainstream, it is also international.
This is an interesting move since it will be targeting K-tel patrons who believed in the company
before believing in K-tel was considered cool.
Along the way, the company's profitable non-online business, which earned $0.40 a share over
the first half of fiscal 1998, may also cloud investors into thinking that the company is turning a
profit on e-tail. If the perception that K-tel should trade at a similar price-to-sales multiple as
CD-Now and N2K gets around, the stock could easily continue to rocket forward. |
