Ancestry.com: Wait For A Lower-Risk Buy Point

May. 6.12 | About: Ancestry.com Inc. (ACOM)

The last time I wrote about Ancestry.com (NASDAQ:ACOM) was after its third quarter 2011 release (see here). Ancestry.com released its first quarter 2012 earnings results on Wednesday April 25th. The company beat on top and bottom line vs. analyst expectations. I wanted to dig a bit deeper into the numbers to see how the company's growth is compared to the past. First, let's have a look at sequential revenue growth from 12 quarters back. Keep in mind, I am looking at revenue growth from quarter to quarter.

2010 Sequential Revenue Growth:

7.2% 15.6% 6.5% 4.3% = 33.8%

2011 Sequential Revenue Growth:

10.0% 11.3% 1.8% 1.1% = 32.8%

2012 Sequential Revenue Growth:

4.1% 6.9% est. 2.6% est. 2.1% est. = 16.3%

As shown above, ACOM is expecting a slowing of sequential revenue growth after the 2nd quarter release. This should be viewed as seasonality, as the first and second quarter are the strongest quarters of the year. But what stands out is the year/year growth drop off from 2010 and 2011 into 2012 of 16.3%. Based on these numbers, it is understandable why ACOM announced, on April 25th, that it has purchased Archives.com for 100 million dollars to potentially increase growth.

VALUATION:
I have a forward 2013 P/E ratio of 13.02 and a PEG (price earnings growth) of .62. Both represent excellent value. I have a price target based on PEG alone of $37.00 per share.

TECHNICALS:
The stock has good support in the $21 to $22 dollar range. So I would be patient and wait for that area prior to starting a position.

Below is a weekly chart of ACOM (click to enlarge image):

Click to enlarge

Bottom Line: ACOM has done a very good job of maintaining a stable stock price despite declining revenue forecasts. They have initiated a 100 million potential stock buyback, plan on releasing new products, and has purchased Archive.com for 100 million. The stock has strong support in the $21-22 dollar price range. I plan on remaining on the sidelines for now and will wait until the stock comes to a lower risk buy point in the low twenties until considering a buy. Thank you for reading.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.