Answers.com: Still A Lot of Questions

Dave Gentry is CEO of investment consulting company RedChip Companies, the operator of the site Redchip.com, which usually focuses on small-cap stocks with potential, or small stocks that have exhausted their potential and no longer warrant the price that they are traded at on one market or another. Recently, Gentry launched a section called "Blogcast" for people interested in small cap stocks, and anyone interested in gossip (which is sometimes a lot more reliable than all the research reviews put together), would do well to visit this site.

This week, Gentry wrote about Jerusalem-based Internet search company Answers Corporation (Nasdaq: ANSW) (see original and followup), and said that it was his "short pick." Why? "Though they have a sexy search engine with unique capabilities and they are aggregating customers, they have yet to prove that they know how to make money. The ANSW’s of the world will come back to earth this year. Their huge losses and sloppy balance sheets will come back to haunt their stocks. Profits do matter and always will matter. Until they have proven they can make money, this stock should trade in the $4-5 range or about 5 times forward revenues. It’s a great short at these levels." Well, how's about that!

Two years ago, when no one saw any profit on the horizon, the stock was traded at $23 and six months ago, it was traded at $18. Two days ago it looked like it was heading down towards $12, while Gentry said it should trade at $4-5. Yesterday, the angel of doom apparently took note of Gentry's words, and the stock duly rallied. Actually, according to a consensus estimate from two analysts covering the company, both of whom rate it "Buy," Answers will move to profit this year, posting earnings per share of $0.30 and $0.76 for 2008. With a growth rate like this, why on earth should they short-sell the stock?

So what’s the next move? I wish I knew. The old timers say that one should go where the success is, so perhaps I should opt for Google Inc. (Nasdaq: GOOG) at $445 a share? 36 of the 40 analysts covering it rate it "Buy" I thought that Google was expensive when it was at $80 and losing money. So is it cheaper at $445 when it's making a profit?

Incidentally, I find it strange that a veteran like Gentry has made comments like these. What does he mean by the prediction, "The ANSW’s of the world will come back to earth this year?" And why should that be the case? Because it's the profitability that counts? This is the type of comment one expects to hear from a university professor, but never from someone on the ground in Wall Street. If I were Gentry, I would do some checking first before making my short pick. Yesterday, Answers VP investor relations and strategic development spoke at the Thomas Weisel Partners Internet & Digital Media Conference 2007 in San Francisco. Who makes such recommendations on the eve of events like these?

ANWS 1-yr chart

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.