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Just a few days removed from the stock surging after announcing a huge deal with a U.S. brand, Velti's (VELT) stock ran into a couple of weak statements from analysts. After surging to over $10.40 on Wednesday, the stock ended down over 6% to $9.37 on Friday.

The company engages in the provision of mobile marketing and advertising technology and solutions for brands, advertising agencies, mobile operators, and media companies around the world.

Following a strong Q2 earnings report (see article here) in August, the stock had been on a huge run, so the drop on Friday might just be profit taking. The frustrating part for long-term investors is that the stock remains one of the cheapest around at only 9x forward estimates. How could any analyst say something to push the stock down from these levels?

U.S. Brand Deal

On Tuesday, the company announced the closing of its largest-ever mobile marketing deal. The deal involves a major U.S. brand that will pay Velti $27M over two years to drive increased engagement with and long-term loyalty of the brand's existing customers.

Maybe more important is the net-30 payment terms and monthly reconciliation and invoicing. While not huge to typical companies, the ability of Velti to obtain better payment terms should help with cash flow. More importantly, moving towards monthly invoicing regardless of whether a campaign has completed is a must. Past deals have seen the company tie up cash while specific marketing campaigns take months to complete, meaning that the initial revenue can take months to even bill.

Needham Reiterates $13 Price Target

After talking to management, Scott Zeller believes the new deal is very strong for the company. He claims to have a higher conviction in the estimates though only placing a 13 forward PE on a $1.02 estimate for 2013.

Investors should wonder why an analyst forecast 30%+ growth yet only gave the company a multiple equal to half the expected growth rate.

DB Initiates with $10 Price Target

Deutsche Bank (NYSE:DB) analyst Ross Sandler initiated coverage with a price target of only $10. Considering the stock had traded above $10 the previous two days, the target would make one think the analyst is bearish on the stock.

Oddly though, the report sounds bullish on the secular growth opportunities and the improvements in gross margins. The only negative mentioned was the high DSOs . Though he did classify it as a late payment issue rather than an extended payment cycle that Velti is working to improve.

The most bizarre statement, though, was that the company was still growing into its valuation. This comment is very odd for a stock trading substantially below the expected growth rate.

Competition

Velti was clear during the Q2 conference call that the company faces a very fragmented market with different competitors in most countries, providing this company with a compelling advantage of being able to offer a complete suite to customers.

As far as stocks, Millennial Media (NYSE:MM) provides the only real pure play comparison. The company provides the largest independent mobile advertising exchange, placing second only behind Google (NASDAQ:GOOG). Millennial has about 60% of the revenue base, none of the profits, but double the market cap of Velti. Just another example of the relative value opportunities provided by the market.

Conclusion

As usual, analysts provide better information on the company details than the price targets. The key takeaway is that these analysts are forecasting earnings to nearly double from the actual $0.50 in 2011 to the estimated $1 in 2013. Would anybody really slap a $10 or $13 price target on such a fast growing earner?

Obviously the stock needed a breather after a big run since the end of July. Many an investor took profits today. Long-term investors though should understand that the stock traded at $20 in July 2011. The sector and the fundamentals suggest the company is better off now than back then.

Ironically, Velti just reported 70% growth as the stock was sitting at 2 year lows. A disconnect continues between the growth potential of the stock and the analysts following the stock. Alert investors will take advantage of this disconnect. The time to unload the stock will be when these same analysts proclaim to buy it at much higher levels with extended price targets.

Disclosure: I am long VELT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Please consult your financial advisor before making any investment decisions.

Source: Velti: Cheap Stock Hammered By Analysts