DynamicWeb Enterprises (DWEB) $9 3/8.
Investor Enthusiasm Chapter II.
Though not quite there yet, we feel reasonably confident that
DynamicWeb
Enterprises (DWEB) has a Category 1 possibility of getting caught up in
the
B2B
mania which has been swirling around Wall Street and which was capped
off by
Friday's action in FreeMarkets (FMKT) which debuted as the 4th best IPO
performer in of all time (up 483%).
For the record, the closing valuation of FreeMarkets was $9.8 billion
vs.
sales
of $13.5 million for 9 months. This is about a quarter of the valuation
of
General Motors which has $130 billion in sales. FreeMarkets sales last
year
were a little bit more than that of Wolfie Cohen's Rascal House (a
deli--one
deli) in North Miami Beach, Fla. We would guess that on this week,
every
reporter at the local business section of every local newspaper will
take a
swipe at these absurd valuation levels. The way we look at it, if Yahoo
can
sport a market value nearly DOUBLE that of GM's with only $465 million
in
sales, who's to say FreeMarket isn't worth $280. Not us. It's all
relative. To
quote Forrest Gump if "stupid is what stupid does," then "stocks are
what
stocks do."
A similar valuation for DynamicWeb (to that of FreeMarkets) would put
its
share
price at $333. Will it get there ? We haven't the slightest clue. Let's
give it
a 90% haircut. That's $33 per share. What is a reasonably rational
person
to do
? At $33 per share our stake in DynamicWeb would be worth $2,775,000.
This as
they say, "is serious money." At $333, just for fun, our stake would be
worth
$32,775,000.
As we've said many times before, you cannot rely on traditional
valuation
benchmarks to be a successful Internet investor. As "Dyed In Wool" (if
there
is such a saying) traditional fundamentalist, we could write volumes on
and
spend days describing how each and every Internet related stock (except
Sportsman's Guide) is grossly overvalued. And if we were to let our
opinion
get
in the way of the momentum investors (which we will not), we would be
sitting
on the sidelines with the only hope of mental redemption being that of
being
able to one day say, "we told you so."
Surely someday, the roosters will come home to roost. But until then,
LET THE
PARTY CONTINUE ! We played the Japanese mania like a violin, we played
the
Biotech mania like a violin. We have every intention of playing the
Internet
mania like a violin. We will let our winners run and cut our losers
short
(most
of the time). If you don't believe us, just watch. One day we will
close shop
and re-emerge as the LinuxStockReview.com (or whatever new mania may be
in
vogue at the moment). Count on it.
Are we tired of owning undervalued stocks at 7 times earnings and 20%
of book
which just sit there like latkes in your stomach (which is to say they
just
sit
there, they don't go anywhere). Of course not. They make up the
majority of
our
portfolio. In fact we will be launching the BullandBearReview.com in
January
which will specialize in traditionally undervalued companies. We did a
quick
search last month and there are literally dozens of companies which a
selling
at valuation levels last seen during the late 70's.
Back to DynamicWeb Enterprises. DWEB is currently in the process of
merging
with another company. News to be monitored on DWEB, since the
announcement
that
it had entered into a Definitive Merger Agreement with eB2B Commerce,
Inc.
(eB2B.com) on December 2nd, will be a A) a proxy through the SEC for
final
shareholder approval and A) the successful completion of the eB2B
private
offering--which is being put together by Commonwealth Associates to the
tune of
$15 million.
So let's get right down to the meat of it. In essence, though DWEB has
very
attractive fundamental attributes, the true story of this is that of
being
ahead of the momentum traders. When we found Go2Net in January of 1998
it used
to trade 10-20,000 shares a day. We clearly remember that on one day it
traded
(January 9th) it traded 2600 shares. Today it traded 1,534,200 shares
at $87.
How could this be ? Where was everyone at $2.00. Wouldn't you normally
think as
the issue got more and more expensive that the trading would get less
and less
? Similarly with Rare Medium (RRRR) which used to be bulletin board and
called
ICC Technologies. In the week preceding the day we added it to the
Watch List
average daily trading volume was just under 100,000. Today it closed at
$33 on
1,670,000 shares. How could this happen ? In short, it's the momentum
players.
And that again, is or will be the DWEB story (we hope).
With regards to fundamentals and in our traditional "less than in depth
analysis," DynamicWeb we decided when we originally added it to the
list, was
attractive from four major points:
1) They had a product that worked. If it didn't work, this tiny
bulletin board
company would have never been able to land the billion clients such as
GTE,
Rite-Aid, Service Merchandise and Southern New England Telephone that
they
did.
2) They had a good strategy, which was similar to that of Gillette's,
in that
they made money selling the "razor blades" versus selling the razors.
3) The Internet was primed for their service which enabled small
suppliers to
deal with multi-national corporations at an average cost of $2-5 per
transaction (including tier take) versus $15-$20 per transaction thus
enabling
them to profit and save their clients money at the same time.
4) They had a huge and untapped market in that only 150,000 businesses
out of
3,000,000 were identified as being able to use their services.
Here is a list of companies involved in B2B commerce which the momentum
players
may be comparing DynamicWeb to sometime in the not too distant future.
They
have some of the prettiest charts you've ever seen:
finance.yahoo.com
Here is an article entitled, "How High Can Business To Business Stocks
Climb ?"
yahoo.cnet.com |
