K-Tel K-Takes Off
The Motley Fool - November 09, 1999 03:29
<A HREF="http://quote.fool.com/chart/chart.asp?uf=0&time=10&maval=0&compidx=aaaaa%3A0&comptick=&symbols=KTEL&currticker=KTEL&submit1=Draw+Chart">Every so often</A>, shares of entertainment and consumer products maker, marketer, and distributor K-Tel International Inc. <a href="http://quote.fool.com/uberdata.asp?symbols=KTEL" onClick="openWindow('http://quote.fool.com/uberdata.asp?symbols=KTEL', 'quotebox', 640, 460); return false;">(Nasdaq: KTEL)</a> -- which traffics in music, videos, gifts, and auctions -- make a move that turns <A HREF="http://www.moonbounce.com/">moon bounces</A> green with envy. <BR>
<BR>
Today was one of those days. The stock jumped more than 65% as of midafternoon -- nearly doubling early this morning -- after the company turned in first-quarter results for the period ended Sept. 30. Earnings per share were $0.30, which compares well to last year's $0.37 loss. <BR>
<BR>
Great, right? Sure, if you're a K-Tel executive. "The fact is the company made a profit," CFO Steven Kahn said in a Bloomberg article, "and it's the first time in quite a few quarters." Six, actually. <BR>
<BR>
That is a fact, but how important of a fact is it? After a $4.3 million gain from the sale of its Finnish subsidiary and a $600,000 expense for a stock repurchase in connection with a stockholder lawsuit, the numbers weren't nearly as pretty; K-Tel's operating loss for the quarter was $709,000, certainly better than last year's $3.2 million loss but hardly good reason for a sudden 65% boost in market value. <BR>
<BR>
On top of that, revenues actually moved back slightly to $18.1 million. The company's gross margin improved year-over-year to 47.4% from 44.5%, and expenses decreased on a pure dollar basis. But that's not necessarily great news if a) sales aren't growing, and b) the company isn't trying to at least make noise in a viciously competitive online music market that includes Amazon.com <a href="http://quote.fool.com/uberdata.asp?symbols=AMZN" onClick="openWindow('http://quote.fool.com/uberdata.asp?symbols=AMZN', 'quotebox', 640, 460); return false;">(Nasdaq: AMZN)</a> and CDNow <a href="http://quote.fool.com/uberdata.asp?symbols=CDNW" onClick="openWindow('http://quote.fool.com/uberdata.asp?symbols=CDNW', 'quotebox', 640, 460); return false;">(Nasdaq: CDNW)</a>. <BR>
<BR>
And we aren't given a balance sheet or cash flow statement to work with, which makes gauging K-Tel's already questionable progress even more difficult. At the end of fiscal 1999 the company was bleeding cash, and that seems likely to have continued in the most recently completed three-month period, given the operating losses and the announcement of several marketing partnerships. <BR>
<BR>
But considering the stock's trading history over the last year or so -- long periods of inactivity followed by flurries of hysteria coinciding generally with company announcements -- it doesn't appear that investors are too concerned with moving beyond the first few sentences of K-Tel's press releases anyway. <BR>
<BR>
Those kinds of trading patterns don't really support this company as a long-term investment. (In what must be a Foolish first, we wrote both a <A HREF="http://www.fool.com/DDouble/1998/DDouble980420.htm">Double</A> and a <A HREF="http://www.fool.com/DTrouble/1998/DTrouble980605.htm">Trouble</A> on the company inside of two months last year.) Anyone considering K-Tel as a solid generator of returns and shareholder value should probably exercise the most extreme caution. <BR>
<BR>
Related Links:<BR>
<A HREF="http://www.ktel.com/cgi-bin/toppage.pl?Session=383083170&brand=ktel&Cat=M&Pagename=main&FirstTime=Y">K-Tel International Web Page</A><BR>
<A HREF="http://boards.fool.com/Messages.asp?id=1160043000000000">K-Tel International Message Board</A><BR>
<A HREF="http://www.moonbounce.com/">Rent A Moon Bounce</A>
|
