"Someone is making money out there…Anthony Elgindy?"
ragingbull.com
Effective today, The Raging Bull has decided to shift gears and enter the online music
industry similar to K-Tel International (KTEL). If you haven't already heard, K-Tel jumped, no surged,
no exploded +12 15/16, 45.1%, to close at 41 5/8 for the day. At one point during the day, K-Tel
shares traded as high as 49 *, a 73% gain. An unbelievable 14.2 million shares of traded hands. A
week ago investors could have picked up a few shares at $8. So what happened here? Are investors
so ga-ga over the Internet boom that all a company has to do is announce that it will sell music
online, and then its stock will jump 6-fold?
Remarkably, K-Tel's float exchanged hands nearly 14 times today. Yes, 14 times! As of
February 8, 1998 there were 3.8 million shares outstanding. Of those 3.8 million shares, CEO and
Chairman, Philip Kives, owns nearly 2.8 million. Betcha' he had a very nice dinner this evening. This
puts the float at around 1 million shares. With K-Tel's small float, and the recent Internet "insanity," it
didn't take much momentum investor enthusiasm to push these shares sky-high.
K-Tel's move to the Internet brings a third player into the online music market, along with the
likes of N2K (NTKI) and CD-Now (CDNW). Proof once again that the Internet is the margin killer (See
Raging Bull's Margin Killer article). K-Tel primarily distributes those great compilation CD's seen on
television ads in the wee hours of the morning like "Disco Mania," "Hot Country," and others. K-Tel
also sells us the wonderful Ginsu knives (what your backs CD-Now and N2K).
While K-Tel will be able to leverage its existing customer base as a starting point, it will still be
entering the online music business with one hand tied behind its back. Competitors like CD-Now and
N2K have significant market leads, particularly after spending millions of dollars in contracts with
popular Internet search engines. Granted K-Tel has an non-online profit stream to finance its efforts,
and an international market-base, but is K-Tel really worth $41 a share?
Also of interest may be the recent happenings at Key West Securities. On Thursday April
16th, Market Maker and Chief Analyst Anthony Elgindy boldly stated:
"Although KTEL has announced plans to offer their products via the Internet, this
hardly supports an increase of 300% in market capitalization. When the hysteria dies
down and the volume dries up, the stock should settle to a more appropriate range
between $5 and $7. This could happen very quickly based on earnings and book
value."
Whoops…A little retraction on Friday the 17th, when Elgindy humbly announced:
"We have decided that we should reverse our position based entirely on the
market's evaluations of KTEL's competitors on KTEL shares and we believe that,
although this sector is overbought, KTEL shares represent the best value of all the
competitors. We believe that KTEL shares could actually trade in the $30 to $50
range and still remain a good value for long-term holders. We now rate KTEL as a
‘buy' on market dips."
Let us get that straight. Although the market is already overbought we should buy K-Tel
because it is the least overbought of it competitors. Its market cap of $158 million is smaller that N2K's
$460 million and CD-Now's cap of $522 million, but does this warrant a jump of 175% in five days?
We thought fundamentals, not speculation, were supposed to be the driving force for long-term
investment decisions. Someone is making money out there…Anthony Elgindy? |
