Deja Vu?: Investors, Beware of Mamma.com's Soaring Stock

Is this deja vu all over again in Mamma.com (MAMA)? Two years ago, MAMA stock went soaring over a period of a month, only to crash and burn. Class actions were filed that tied mamma.com to notorious stock promoter Irving Kott.

Just last month (November 16, 2006), the company settled this class action lawsuit for several millions of dollars. And now, deja vu. Since the most recent announcement of the adding of a video search component (only in beta format based on text tags like everyone else) the stock of mamma.com has risen over 300% on investor euphoria.

MAMA 1-yr chart

With a market cap of $100 million, Mamma.com has a net cash position of around $5 million, hardly enough to compete in the search space, and has recorded three month revenues of last quarter of a paltry $1.8 million, down 20% from the same three months a year ago. The company has lost $4.7 for the last nine months and shows no signs of recovery.

Last time this happened, the SEC started an informal inquiry into their trading. Traders must beware of the dangers facing shareholders.

MAMA is a notorious PIPE issuer and will likely use the recent rise in stock price to raise money. When the stock market starts looking like a casino for daytraders and momentum players, it is normally time to take chips off the table.

Cautious investing to all.

Disclosure: Author is short MAMA.

Comments

[Anonymous U...:]

I do not think MAMA has video technology behind recent surge in its stock.
If one looks more into it, MAMA licensed the technology from www.pixsy.com/ for its video.
MAMA also licenced image search from www.picsearch.com/.
And to think of it, if Google decided to block youtube video from showing up in MAMA results,
there would be no more youtube video in its search results.

I guess, one can take a penny stock, make a web site, paid $$$ to Pixsy and Picsearch,
the result will be another MAMA ???

Need to do more research when buying any stocks.
Good luck.
(I did not own MAMA or short MAMA, I like to invest in Pixsy, but I think it is a private company.)

2006 Dec 22 09:26 AM

[Dan Jacome:]

The surge was rumors of a BIDU buyout. IACI, GOOG, and even MSFT entered the rumor mill. It was the coupling of intensive rumors with a new vid platform that sent shares higher. The rise was also compounded by a large amt of shares that are short, as well as an easy-to-move float.

The volume during MAMAs short lived meteoric rise was the most interesting facet, though: it looked like the total float was being traded 3-4x a day -- this is simply a sign of churn, or worse, manipulators "painting the tape," which is when volume is artificially produced (2 parties buy and sell shares with each other all day) so that certain players can get out and sell their shares to uninformed rookies who think "something is really going on." The more astute day trader will recognize what is going on, jump on board for 1/2 a day, and get out with a 23% gain prior to the bell..the loser, of course, holds overnight, only to watch his massive gain evaporate in the pre-market hrs...

It's a permutation of the Greater Fool Theory except in this scene, funds are pulling all the marionette strings...

DJ
Kelley School of Business

2007 Jan 03 01:29 AM