Ride Over For Local.com

Local listings search engine Local.com (LOCM) has seen its stock more than triple in the last five days on soaring volume after word last week that the company had won patents for Web search technology and might have a valuable patent horde that could be the target of an acquirer.

Well, the party’s over, says Santa Monica-based research and trading house MDB Capital Group. Analyst Jon R. Hickman says $116 million market-cap Local is a speculative momentum play, commenting that “much of the activity in the stock is being fueled by guesswork surrounding the potential value of the new patents and also by speculation of the value of Local.com as a takeover candidate,” and that “the stock price is currently well ahead of the fundamentals of the business.”

Hickman’s target price for the stock is $7.25, 40% south of Friday’s price.

Hickman cautions that those trumpeting the patent virtues of Local don’t realize how far a trip it is from merely holding patents to turning them into cash:

Local.com’s patents have not been upheld in court; there is no solid information on who or how many other search companies may be infringing on this patent; the company has no licensing agreements; and there is likely other competing technology. In addition, even if the patents are valid and the company is willing to fight the legal battle to enforce the patents, the legal proceedings could easily last two years or more. Though we believe the patents likely have value, realizing that value could be a long process and cost the company considerable management time and potentially millions of dollars.

Hickman expects Local.com to become profitable “on a cash basis” by the middle of next year, but he says that at 4x next year’s $32 million in projected sales, the stock is too expensive.

Comments

[Kwarehouse:]

quote.barchart.com/tex...;code=XTDS

2007 Jul 08 04:13 PM