From Bull Market Report: UNLOCKING THE VALUE
By Gabriel Watson
Jan. 24, 2000
Net2Phone (NTOP), a company that enables computer users to make phone
calls and send faxes over the Internet using its PC2Phone software, sees
the end of its lock-up period on January 25, 2000. Net2Phone pioneered
this technology, a form of Internet telephony that is much cheaper than
traditional telephones and faxes, and is the leader in this field.
After a company goes public there is a period of time called a lock-up
period, when company officers, directors and other insiders are not
allowed to sell the stock. After this period they are free to sell and
there is usually quite a rush to do so, forcing the price down. The
period immediately after Net2Phone's lock-up expires could be the perfect
opportunity to buy shares. While it might sound irrational to buy shares
when a group of insiders are selling them, there is method in the madness.
There are two scenarios that could occur when this lock-up expires. In
the first, insiders might sell and the stock price could go down.
However, this selling would be overblown because Net2Phone's fundamentals
are sound - for an Internet company. After a dip in price, the stock is
likely to ramp up. In the second scenario, the stock could move up
without a dip when the lock-up expires. If a number of insiders sell the
stock, the float will increase, making it easier for some heavy hitters to
form positions in the stock. And there is nothing like institutional
backing to make a stock feel loved. Either way, buying Net2Phone during
that period could be a good play.
A chart of Net2Phone since the IPO shows it has established a base pattern
since mid-September 1999 of about $50. In addition, volume has decreased
considerably. In technical analysis land, this is called the "calm before
the storm". In historical patterns such as this there is a good chance of
a pop-up, and the lock-up expiration in the picture makes that pop-up even
more likely.
Fundamentally, Net2Phone looks like a typical Internet company --
explosive revenue growth (200% average year over year), bleeding a little
red ink but accounting for about 74% of gross revenues (instead of the 2x
revenue loss seen with most Internet darlings). In addition, the stock
trades at only a 45 multiple of sales, which is fairly low when compared
with other Internet companies.
Shares in Net2Phone would be more of a trade than an investment, but the
company is definitely worth a look. |
