Hold your internet music stocks, KTEL...
REITERATED STRONG BUY PRICE TARGET $100
Friday May 1, 10:29 am Eastern Time
Company Press Release
SOURCE: Stock Investor Trading News
Stock Investor Trading News Reiterates Strong Buy on KTEL with $100
Target
AUSTIN, Texas, May 1 /PRNewswire/ -- Stock Investor Trading News (http://www.sitn.com) has reiterated its ''Strong
Buy'' recommendation on shares of K-tel International (Nasdaq: KTEL - news). Stock Investor Trading News initiated
coverage of KTEL on April 17 at $21-1/8.
''We are pleased to report that we have reviewed K-tel's new 'K-tel Express' website (www.ktel.com) and remain highly
confident that K-tel will indeed be a serious competitor in the burgeoning online music retail industry,'' says Fundamental
Analyst Louis Riley. ''We believe that the company's current share price still offers investors an excellent opportunity to
participate in an emerging retail segment that is expected to grow explosively in the months and years ahead.
''The company has put together a competitive offering that stacks up well against CDnow's (Nasdaq: CDNW - news) and
N2K's (Nasdaq: NTKI - news) sites. K-tel Express actually holds an edge over its competitors in terms of being a more
transactionally driven site. For instance, the home page prominently displays the current #1 album on The Billboard 200: the
'Titanic' soundtrack, and with one click offers the viewer all of the top 40 Billboard 200 albums. To find 'Titanic' -- the nation's
top-selling album for the past ten weeks -- on CDnow or N2K one must execute a search of the site. A cursory price check
of several top-selling albums also gives K-tel Express the edge. 'Titanic' sells for $15.07, including shipping and handling, from
K-tel. The same album costs $15.57 from CDnow, and $15.48 from N2K. All in all, we think K-tel Express is a solid initial
offering that is likely to hold great appeal for the serious music consumer who is ready to shop, and more importantly, buy.
''The company's recently announced collaboration with RealNetworks (Nasdaq: RNWK - news) to develop the 'K-tel
Custom Compilation System' by early July further demonstrates the company's commitment to using innovative new
technologies to leverage and expand their already well-established business. This new offering is unique in that it will enable
consumers to create their own personalized CDs by selecting songs from K-tel's extensive owned-music catalog of over 3500
Top 100 hits, laying the tracks out in any order they choose, and having the final product shipped to them, packaged with
custom artwork, within days. Another recently announced offering from a competitor will require consumers to purchase
special software and hardware, manage the download themselves, and will not provide packaging. Other existing websites that
offer personalized CDs do not rival K-tel's vast selection.
''On another topic, we would like to make some additional comments beyond those set forth in our initial recommendation in
light of the stock's subsequent dramatic rise, extreme volatility, and the amount of press that price action has generated.
''First of all, the recent dramatic price gains merely lifted the stock up from an extremely undervalued level. At the close on
April 9, before the new Internet commerce venture's launch date was announced, the stock traded at less than 12 times trailing
twelve months (TTM) earnings and a little more than 23% of TTM sales. Moreover, the stock had previously traded
infrequently as most of the shares are held by the company's chairman. Incidentally, as of yesterday the SEC's Edgar web site
had not recorded any Form 144 filings denoting any insider selling since the April 9th announcement.
''At KTEL's present all-time high price of $49-1/2, K-tel International was valued at a little more than two times TTM sales --
sales that did not yet include any contribution from the company's new web site.
''K-tel's price to TTM sales multiple (PSR) at $49-1/2 was little more than a fourteenth of competitor CDnow's PSR at last
night's close of $32 per share (trading at nearly 29 times TTM revenues), and a tenth of competitor N2K's PSR at its recent
price of $25 (trading at more than 20 times recently reported TTM revenues). While some might argue that K-tel's impressive
48% year over year recent sales growth in the past two quarters is still less than its competitors', we would point out that its
competitors are growing sales off of a very small base. K-tel's past two quarter's revenues surpass CDnow's and N2K's
combined revenues during the past two years. Furthermore, K-tel has the unique distinction of being of the few emerging
Internet retailers that actually has a recent history of generating profits,'' says Mr. Riley.
''We continue to believe that a price to sales multiple expansion to a little over four times TTM revenues would be quite
reasonable for K-tel, would still place it among the bottom range of valuations for emerging-growth Internet retailers, and
would yield a share price of approximately $100. We would not be surprised to see an even greater multiple expansion and
even higher stock price than our initial target as the company's new venture proves itself in the months ahead.
''Regarding concerns about KTEL's float, we note that CDNW and NTKI also have floats approximating 25% of their
outstanding shares. YHOO's (Nasdaq: YHOO - news) float to outstanding shares ratio is a mere 15%; AMZN's a mere
12.5%. So K-tel is certainly no anomaly in the universe of Internet commerce companies in terms of its stock's float.
''Regarding concerns about K-tel's marketing strategies, the company has a longer operating history as a successful
direct-marketing company than any of its competitors. In addition, we take the somewhat heretical view that there may be
other ways to drive sales and build brand and market share on the Internet besides the profit-crushing multi-million dollar ''real
estate'' deals that many e-tailers have opted for. It remains to be seen whether those kinds of deals are truly worth it. Judging
from the enormous current and projected bottom-line losses being generated by most e-tailers as they lavish millions of dollars
on content aggregators in the quest for market share, we have some doubts. We think a smart and innovative marketer like
K-tel may pioneer more cost-effective ways of capturing eyeballs.
''Regarding concerns about K-tel's financials, we note the fact that the company achieved an admirable 44% return on equity
in the trailing twelve month period and has remained profitable in recent quarters while incurring the expenses associated with
ramping up its Internet entry.
''Finally, we note that even after all of the global press coverage KTEL's dramatic rise has generated, many people still just
don't get it. Most TV and print coverage has incorrectly reported that K-tel will only sell their proprietary music compilations
on the web. Unbelievably, many people still simply haven't done their homework and learned the basic story; that K-tel's
website offers over 250,000 titles -- just like their competitors.''
Technical Analyst David Barney says that ''the time has come for K-tel to shine. Now that they have a product for the world
to see the Street should begin to value the company in the same way they do the others in the group. I still feel that what will
drive the stock is the enormous imbalance between the supply and demand. There is just no stock out there. Each day that
goes by more and more long term players accumulate the stock, meaning that moves of 10 or even 20 points in a day are not
out of the question. Investors that own the stock now seem to realize that by just holding the stock they can move it higher.
''In conclusion, we encourage all prospective investors to do their own due diligence and research regarding the company and
the industry before making any investment decisions. K-tel's corporate web site at k-tel.net contains a
comprehensive link to several years of the company's past federal filings,'' notes Mr. Barney.
Stock Investor Trading News (http://www.sitn.com) provides a daily newsletter service to traders and investors around the
globe. Some of the companies past recommendations have included 800 Travel Systems (Nasdaq: IFLY - news),
Amazon.com, Inc. (Nasdaq: AMZN - news), America Online Inc. (NYSE: AOL - news), Applied Materials (Nasdaq:
AMAT - news), Dell Computer Corp. (Nasdaq: DELL - news), Intel Corp. (Nasdaq: INTC - news), K-tel International
(Nasdaq: KTEL - news), and Tellabs, Inc. (Nasdaq: TLAB - news).
The company is 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.
Mr. Barney and Mr. Riley, as well as other principals and affiliates of Stock Investor Trading News, currently hold a long
position KTEL.
Stock Investor Trading News can be reached at 512-347-7460 or 281-281-1742.
SOURCE: Stock Investor Trading News |
