CMGI (Nasdaq: CMGI), a $652 million software maker, was once one of the hottest stocks on Wall Street, but it’s been a long ride down from the top since the bubble days and the company was forced to do a reverse split just to stay out of Penny Stock land. After falling more than 50% since June, the company reported solid earnings of 18 cents/share last night (compared to expectations of 10 cents) a
nd even though revenues were down 2%, they reiterated 2008 guidance, which is hugely important for a beaten down stock. Margins of 14% beat analyst expectations of 12% and the comeback was on with the stock surging nearly 30% to close at $13.33. This is clearly a turnaround story.
Now, here’s where it gets interesting. Yes, the stock is up nicely off its lows. But, the stock is also waaaaaaay off its highs and this is perfect 2-year chart bottom at $10. You’re still going to have tax loss selling here—there are many bitter shareholders, read the transcript of the conference call and you’ll see a couple (it’s kind of funny to read about). With 3 million shares short, you could get a nice short squeeze—especially if any of their venture capital investments pay off (they’ve invested $26 million in various startups). Value investors will be interested in the company’s $11 book value, nearly $6 per share in cash, forward PE of 12 or so and expected revenue growth in the 7-8% range. I wouldn’t be too aggressive in buying shares here, but I do think we’ve seen the lows, so there’s not much downside.
Disclosure: No position
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