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Dramatically overvalued atock at $19/share. Company can easily grow revs by acquiring lots of small mom-and-pop Web-site developers, but most of the projects are very low margin(gross margins in the 20's at best) and not particularly large. Superimpose the goodwill that continues to mount rapidly from these acquisitions, and there is no way for this company to bring any money to the Corporate bottom line on these time-and-materials projects.
Additionally, as today's announced lawsuit against them attests, they are exposed to litigation every project. Should the work be late or faulty, the client can sue not only to recoup costs but for damages including lost sales over the Web.
Also, with the availability of new affordably-priced packaged software,t is becoming increasingly easy to build Web sites--thereby reducing the value-added of U S Web's work (i.e. shrinking project size, with more clients building/revamping their own).
Finally, U S Web has used their stock for many of these acquisitions and the lockup period for much of that stock has recently ended. Most of the moms and pops will be cashing in their stock subject to Rule 144--a very large overhang for a long time--and, if they continue to acquire, the stock-liquidation process will go on ad finitum.
I see this stock in the single digits within 6-9 months as the street sees through the unprofitable economic model.
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