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AUSTIN, Texas, April 17 /PRNewswire/ -- Stock Investor Trading News has initiated
coverage of K-tel International KTEL with a "Long Term and Short Term Strong Buy."
"We believe that K-tel offers investors a ground floor opportunity to participate in a
retail segment that is expected to grow explosively in the months and years ahead,"
says Louis Riley, Analyst with Stock Investor Trading News . "Industry studies
project that music e-tail (Internet retail) will grow from $135 million in revenues this
year to over $1.5 billion through the year 2001, and we expect K-tel to garner a fair
share of that market."
"K-tel has a long operating history as a successful direct marketer of music, and we
believe they will be able to successfully transfer that expertise to the Internet in a
way that will revolutionize the industry. The company has spent much of the past
year developing new direct-to-the-consumer marketing methods that will be
implemented in conjunction with the more traditional search engine relationships
(advertising arrangements) being used by competitors. These methods will be
unveiled on May 1 when the company's new website goes live," says Mr. Riley. "We
feel that K-tel's multimedia advertising approach will prove more effective than the
strictly web-based marketing strategies being used by competitors."
"K-tel has one of the largest and most diverse music master catalogs in the industry,
with over 3500 Top 100 hits. This intellectual property has yielded sales of millions of
compilation music albums over the years. But the big new story is that they will now
offer over 250,000 titles through their new web site, not just their famous proprietary
compilation recordings. You will be able to sample and order new releases from
almost every label. This immediately puts K-tel squarely in competition with CDnow
CDNW and N2K NTKI in one of the hottest segments of e-tail," says Mr. Riley.
"We believe the stock is extremely undervalued. There is a glaring discrepancy
between K-tel's valuation and its competitors. Competitor CDnow has a market
capitalization of more than $532,000,000 and sells for more than 30 times trailing
twelve months" (TTM) revenues. Competitor N2K has a market capitalization of more
than $401,000,000 and sells for more than 35 times TTM revenues. In the last two
quarters K-tel's revenues increased more than 47% over the same period a year ago,
and yet the stock still trades at less than one times TTM revenues of more than
$91,000,000. Moreover, in the last two quarters K-tel had greater revenues than
CDnow and N2K's combined revenues for the past two years. If K-tel were to
command N2K's price to sales multiple it would be a $850 stock. So there is
obviously room for significant multiple expansion," says Mr. Riley.
"The short-sellers" valuation argument that this should be a $5 stock is absolutely
absurd. That would mean that this premier franchise could be had for less than 21%
of TTM revenues. I challenge anyone to point to a successful Internet retailer selling
at anything close to that multiple. The reason this stock languished in single digits
for so long is that it has not been actively traded until now. The stock has an
extremely small float of approximately 900,000 shares, as almost 72% of the
outstanding shares are held by K-tel's Chairman, CEO, and founder Mr. Philip Kives,
and another nearly 6% are held by other officers and directors. This small float,
combined with the large short position that has been built in the stock in the past
week as technical traders were emboldened by what initially appeared to be a
textbook reversal day on April 15, should make for an explosive rally in the days
ahead. We would not be surprised to see the stock move dramatically higher in a
very short period of time. We think the stock could easily trade over $100 in the days
or weeks ahead as the web site goes online and strategic relationships with Internet
content aggregators are announced," says Mr. Riley.
David Barney, Technical Analyst for Stock Investor Trading News, notes that "The
momentum within the sector that has lifted many of these stocks to new highs has
only recently been reflected in the shares of K-tel. It's hard to fight this kind of
explosive move, and it usually doesn't pay," says Mr. Barney. "I would expect any
short term dip in the price of the stock to quickly draw in retail buyers and the
increased demand for the shares could be overwhelming.
"The Internet group is the leading sector for the year and with many of these stocks
already so extended, K-tel's technical picture actually looks pretty tame. We believe
that the technical outlook is very promising and that this is only the beginning.
"It's a common belief on the street that the average retail buyer can easily loose
conviction and be shaken out of a stock after a rapid rise. But the Internet stocks
have shattered these myths and some very experienced traders have been run over
trying to short this group. As both a trader and an investor we are very excited about
the company's future," says Mr. Barney
Stock Investor Trading News provides a daily newsletter service to traders and
investors around the globe. Some of the companies past recommendations have
included Intel Corp. INTC , Tellabs, Inc. TLAB , America Online Inc. AOL , Dell
Computer Corp. DELL , Amazon.com, Inc. AMZN , and Applied Materials AMAT .
The newsletter also gives information about "short sales." Some of the past short
sale recommendations have been Citrix Systems, Inc. CTXS , CIENA Corp. CIEN ,
and Cymer, Inc. CYMI which was the biggest winner of 1997.
The company is also in the process of building a new website which will be an online
hub for both traders and investors to exchange ideas and get information.
The principals and affiliates of Stock Investor Trading News currently hold a long
position in KTEL. Mr. Riley also holds a long position in the hedge fund he manages.
SOURCE Stock Investor Trading News |
