Answers Corporation: A Checkmate for Shorts

Answers Corp (ANSW) was trading at $10.67 just two Fridays ago and closed last week at $17.12. Though Google (GOOG) provides a good chunk of Answers' traffic, it doesn't look like ANSW is about to be acquired by anyone. The reasoning is fairly simple. Google doesn't have to spend a dime to get extra traffic as most use Google instead of going directly to ANSW. Google's competitors won't buy the company as most of ANSW's traffic is channeled through Google. No competitor is dumb enough to put themselves in a checkmate situation.

With a market-cap of only $134M it is fairly easy to manipulate this stock which explains the heavy swings in both directions. The company is not yet profitable nonetheless valuations are within the realm of normality. ANSW can trade anywhere between $10 and $20 per share and it would still be within a normal range. Above $20 this stock gets pricey, but it looks like it is heading in that direction.

ANSW 1-yr chart

Disclosure: No conflicts.

Comments

[Ralph F:]

How do you generate the $10-20 range for fair value?

2007 Jun 04 04:24 PM

[CrossProfit:]

There is no 'fair value' for this one in the conventional sense of the term. Stock is driven by pure speculation and will continue until click growth diminishes. Until then, rumors, expectations and pure speculation will drive this stock up and down like a yo-yo.

2007 Jun 04 04:56 PM

[Frank Li:]

"Checkmate for shorts" sounds as though shorts are in trouble, but your article seems to suggest that as the stock trades to $20 it's a good short candidate. Is that correct?

2007 Jun 04 04:26 PM

[CrossProfit:]

Correct

2007 Jun 04 04:48 PM