Monster Worldwide, Inc. (MWW) was once a high-flying stock but now it is trading at deep value levels, especially for a company in the Internet sector. This company has developed and operates a number of popular websites which are geared towards job-seekers and employers. "Monster.com" is widely-used in the United States, Europe, Asia and other areas.
While the momentum investors have piled into "hot" Internet stocks like LinkedIn (LNKD) and now even Facebook (FB), Monster shares are worth considering for a number of reasons. First of all, a lot of investors have been burned by shorting LinkedIn and Facebook as those stocks have been squeezed higher and the same could happen with Monster shares. According to Shortsqueeze.com, nearly 14.5 million Monster shares have been sold short. With an average daily volume of around 1.9 million shares, the short interest is equivalent to about 8 days worth of trading volume.
Monster is a profitable company and analysts expect it to earn 34 cents per share in 2013, and 37 cents per share in 2014. That puts the price to earnings ratio at a undervalued level of just around 15 times earnings. That is a bit below the average for the S&P 500 Index (SPY) which is currently trading for about 16 times earnings and it is even lower when compared to the PE ratios for many Internet stocks.
Monster shares also look undervalued and attractive when considering that the book value is $7.64 per share. Plus, the company has a solid balance sheet with about $79 million in cash and around $138 million in debt. It's worth noting that Monster generates a substantial amount of revenue- about $844 million on an annual basis and has a market capitalization of about $590 million. By contrast, LinkedIn has reported about $1.24 billion in annual revenues and it has a market capitalization of about $26.6 billion.
Monster shares have disappointed some investors this year due to the belief by some industry-watchers that it cannot grow rapidly. However, the job market in the U.S. is improving and that could add growth potential for years to come. European unemployment could also be starting to improve and this would also be very positive. Plus, Monster announced cost-saving initiatives earlier this year, (which include layoffs) which is expected to reduce operating expenses by approximately $130 million per year. If achieved, that level of savings could be equivalent to over $1 per share being added to the bottom line each year, since Monster has about 113 million share outstanding. With a solid balance sheet, profits and an improving employment rate, the main potential downside risk for shareholders might be management execution. However, management does seem to be taking the right steps.
Monster said it is reviewing strategic alternatives with a top investment banker and this may result in the sale of part or all of the firm. Some industry watchers believe that a company like LinkedIn or Yahoo (YHOO) could be a potential suitor for Monster and that could be a real bonus for shareholders. I believe a company like IAC/InterActiveCorp (IACI) should consider buying Monster because it is a highly acquisitive company that owns websites like Match.com, About.com, Ask.com and many others. It has revenues of about $3 billion and a strong balance sheet with nearly $700 million in cash, which means it has the financial resources to make acquisitions. Since it already owns a number of popular websites there could be strong cross-marketing synergies and cost savings if it were to acquire Monster.
Earlier this year, analysts at UBS set a $7 price target and MKM Partners sees even more potential with a $9 price target. That implies gains of nearly 100% and with a strong balance sheet, cheap valuation and even takeover potential, the downside risks appear limited.
Key Data Points For Monster Worldwide From Yahoo Finance:
Current Share Price: $5.63
52-Week Range: $4.02 to $6.25
Data is sourced from Yahoo Finance. No guarantees or representations
are made. Please consult a financial advisor before making investments.