I'm Booking Profits

| About: India (REDF)
This article is now exclusive for PRO subscribers. (NASDAQ:REDF) stock has more than tripled since I recommended it 5 months back. The stock price is currently ~7 and the investment community now knows the story much better.

Although upside is still possible going forward, chances of a repeat performance (a 350% gain) is improbable in the near term unless there is a buyout. Risk reward appears pretty much balanced here. A $210 mn market cap for the top domestic internet portal of India is still not too large. However, I unfortunately cannot reiterate my earlier stance that I saw no major risk here. Here are some major concerns:

  • The Indian stock market has already corrected 15% from its November 2010 high. The correction in the stock market is likely to make it difficult for small companies to raise money. Thus, advertising revenues for Rediff might also be affected as smaller companies cut discretionary spending.
  • Rediff is a web 1.0 portal and is still losing market share to other web 2.0 peers. Although it has initiated some good web 2.0 strategies, like MyPage, the company is still in a nascent phase. I have the same concerns with Rediff as Yahoo (YHOO) shareholders have with
  • I am concerned about the business decisions which CEO Ajit Balakrishna has taken in the past, including a minimalist look for the main page etc. These decisions adversely affected the advertisement revenues and caused significant detoriation in shareholder value. The recent acquisition of a promoter group company, Vubites, doesn't help either.

For my readers who have bought low and seen such a huge appreciation, I would suggest booking at least partial profits on the stock between $7-$10. I now cut my recommendation to hold from buy. The gross undervaluation at which company was trading 5 months ago is over, and the company is now reasonably priced. Going forward, the company's actual financial performance would be the main driver for my investment decision.

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