The Real Story Behind Local.com's 30% Gain Yesterday

Local.com Corp. (LOCM) shares surged Monday amid speculation of a takeover following the company's receipt of a couple of patents for search technology. The rumors are not just being spurred by momentum traders who have been all over the stock, but also the CEO who according to Reuters earlier Monday said that Yellow Page and some newspaper publishers approached the company.

This is quite a leap from the CEO's statement in yesterday morning's press release announcing the second patent in which he encouraged "directory assistance and free 411 companies that are interested in using our intellectual property to enter into licensing agreements with Local.com."

And so, what do you know, later in the day there were newswire reports that quoted the CEO as saying his comments were misconstrued. The follow up caused some rocky trading as the stock fell from an intra-day high of $11.89 to close near the lows of the session at $8.96. As for the patents, which deal with geographic search and the ability to respond to directory assistance inquiries with voice-enabled and text-messaged systems, at first glance they seem broad, so it's pretty hard to tell how much value the patents would add or if they would even hold up in court. Local search is a huge buzzword these days so it's not surprising there is a lot of hype surrounding the patents.

However, the real story here is the undeniable fact that the profile of the company has been substantially raised. And there were some telling comments from MDB Capital Group Jon Hickman yesterday afternoon. According to Forbes, Hickman says he knows "they get takeout offers weekly" but the company wasn't "entertaining offers seriously."

There appears to be interest and with a very small market cap, the stock could fetch a decent bid. But the problem is that the stock has tripled in a matter of days and whatever premium for a takeover that existed before the run up might have vanished. Considering that all the takeover talk could turn out to be nothing but smoke and mirrors, are you willing to bear that downside risk and stay long?

LOCM 1-yr chart: