Well, that was one of the few rational analyses I've seen for a while. I used to listen to Howard Stern in the mornings for some absurd talk and laughs. These days I just scan through the newswires. Much funnier to read some of the rationalizations which pass for analysis. Today's example:
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Stock Investor Trading News Issues Strong Buy Rating on KTEL
AUSTIN, Texas, April 17 /PRNewswire/ -- Stock Investor Trading News has initiated coverage of K-tel International (Nasdaq: KTEL - news) 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 ( sitn.com ). ''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 (Nasdaq: CDNW - news) and N2K (Nasdaq: NTKI - news) 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 ( sitn.com ) provides a daily newsletter service to traders and investors around the globe. Some of the companies past recommendations have included Intel Corp. (Nasdaq: INTC - news), Tellabs, Inc. (Nasdaq: TLAB - news), America Online Inc. (NYSE: AOL - news), Dell Computer Corp. (Nasdaq: DELL - news), Amazon.com, Inc. (Nasdaq: AMZN - news), and Applied Materials (Nasdaq: AMAT - news). The newsletter also gives information about ''short sales.'' Some of the past short sale recommendations have been Citrix Systems, Inc. (Nasdaq: CTXS - news), CIENA Corp. (Nasdaq: CIEN - news), and Cymer, Inc. (Nasdaq: CYMI - news) 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
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I checked out the website and this "company" appears to be two guys: "Mr Riley" and "Mr Barney", who are also the only people quoted in this press release. Their source of income appears to be an advertising deal with -- you guessed it -- AMZN.
Of course, they are also making unsubstantiated claims about the content of the website (which does not yet exist), about K-Tel's "decison" to enter general music retailing in addition to their traditional "compilation" business, etc.
The whole thing is a house of cards. Watching it fall could be the best entertainment I have this year.
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