Although a bit risky, we are adding IceWeb to our unbiased portfolio. The stock is currently trading at around $0.20 a share. A little less than a year ago, the stock was trading at $0.40, dipped to as low as a dime, and has since stabilized with a solid base at $0.15. The last year has seen some selling, but the overall two year trend has been up. We believe that a very small position could easily double should positive results begin to materialize. We generally have short term time frames for these types of positions, however, we feel in this case, a position could be slowly added to over the mid to long term if things go well enough. If earnings start to trickle in, the stock would be forced dramatically higher based on ridiculous valuations. A future market cap in the hundreds of millions of dollars does not seem like too much of a stretch, especially given the current and potential future growth of this once niche segment. What are the Risks? The major risk here is dilution. We mentioned that the company has doubled it's amount of shares outstanding every year for the last decade. With the share count now over a 100 million, another doubling would be crushing to the stock price. One positive of the dilution is that the company has zero long term debt. R&D spending will be critical going forward, and with revenues starting to roll in, it remains unclear as to how much positive cash flow they will be able to generate. The company also has a history of developing promising products, and then discontinuing them before they really see any success. This time around, however, it's products have quite a bit of excitement surrounding them, and a lot of demand. There is no guarantee, however, that IceWeb will be able to keep up with demand and competition, especially given it's tiny size. Bottom Line Buy $0.20 Sell $1.00 Stop Loss $0.125 Time horizon: 3-18 months Position Size: Very Small |
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February 7, 2011 PSW Staff |
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