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To
OTC Journal Members:
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Trading Alert-
LendingTree Inc. (NASDAQ: TREE) |
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The editors of the OTC Journal
get ideas from many different sources. We have contacts from years of experience
in the markets. One of these many contacts provided us with an idea this
past December. In our December
2, 2002 edition we published a Trading Alert on eResearch Technologies
(NASDAQ: ERES), which we rated as a buy up to $16. EResearch
Technology closed at $27 Friday, for a 70% return on invested capital
over four months. These kinds of returns are few and far between in today's
market.
Today's idea, LendingTree,
comes from the same source. This does not guarantee the same results, but
we like our chances. For those that don't recognize the name from their
nationwide advertising campaign, LendingTree is the premier Internet-based
loan marketplace for consumers and lenders. The company collects consumer
credit requests and compares those requests with the underwriting criteria
from 190 participating lenders in the LendingTree exchange. Consumers
can receive up to four offers in response to a single loan request within
hours and then compare, review and select the loan offer that best suits
their needs. Lenders can generate new business that meets their specific
underwriting criteria at reduced acquisition costs.
LendingTree generates revenues
several different ways. Each lead forwarded to a lending institution generates
a fee of $1 to $10. When a loan actually closes LendingTree receives
fees ranging from $36 to $750.
The company is expanding its product
line to include telephone sales and other financial products such as credit
cards.
In 2002 LendingTree generated
$111 million in revenues, up 74% from the previous year.
The company also had its first profitable year. In the December quarter
alone,
LendingTree earned $6.1 million on $34.7 million in revenues
($.19 EPS).
LendingTree has publicly stated
it expects to achieve $139 million in revenues and $.50 in EPS in 2003.
Since coming public in 2000, the company has grown every quarter, and exceeded
earnings expectations every quarter. On March 11th, the company raised
guidance for the first quarter, following a pattern eResearch established
on its way to $27.
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Basics
For this Idea |
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As was the case with eResearch,
there is an enormous short position in LendingTree. There are 32.2
million shares issued and outstanding. About 14 million are publicly traded.
At last report, there was short interest of approximately 5 million shares.
Short sellers argue the real estate
bubble will burst, and home refinancing will dry up, leading to a slowing
of LendingTree's growth. Supporters argue lending institutions will
need sources of new business if the market declines, but the mortgage market
isn't likely to decline.
We believe companies with new and
exciting business models can grow in nearly any environment, as was demonstrated
by the success of Expedia (NASDAQ: EXPE), which has prospered in
the online travel business despite the worst travel environment imaginable.
Short sellers were murdered in Expedia when USA Interactive announced
it was tendering an offer to buy out the company earlier this month.
As you can see from the chart, LendingTree
has been in a strong uptrend since the first week of March. The stock pierced
its 50 day moving average (blue line) with ease, and is now flirting with
the 200 day moving average (yellow line). Consistent trading above the
200 day moving average would confirm a long term uptrend.
An ideal entry point for the stock
would be established if it were to pull back to the support line, depicted
in red. Somewhere in the $11.75 to $12 range would be a great entry level
if the stock retreats a little from Friday's $12.35 closing price.
A drop under $11.30 would suggest
the market is convinced the short sellers are right and the company's business
is suffering.
Here are the parameters of this Trading
Alert
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Buy TREE up to $12.50,
while monitoring for a pullback into the $11.75 range as the ideal
entry level.
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Target Price- $15 to $16 expected
to be achieved as 1st quarter earnings are released (third or fourth week
of April)
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Stop Loss- $11.30.
This recommendation is based on the
stock trading up ahead of the March quarterly earnings release, which we
believe will come in stronger than expectations. A number of internet stocks
have traded well recently (EXPE, AMZN, YHOO, ASKJ, etc), and short sellers
are taking notice.
For those wishing to invest more
aggressively, there are options trading on this stock. The May 10 calls
are offered at $2.85, and the May 12.50 calls are offered at $1.20. Option
trades should only be considered by those who can afford the entire loss
of their investment.
In the interest of
full disclosure, we inform you one of our editors has purchased 10 May
10 calls at $2.85 for his personal account. Our editor intends to add to
this position if the stock pulls back as described above. This should be
viewed as a potential conflict of interest.
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Members' Forum
Lots of emails on SHEP Technologies
(OTC BB: STLOF), which was featured in the last Member's Forum. Here are
some comments, including one on Calypte Biomedical (OTC BB: CALY):
On SHEP Technologies
The Toyota Prius is currently for
sale to anyone who wants one, regardless of foot mass of driver.
There are no plans for discontinuing the model. The car is gasoline/electric
hybrid, the only way to run out of power is to forget to put gas in it
before the tank runs dry. The approximate range of the Prius is 560
miles per tankful.
Thanks,
Mason H
On SHEP Technologies
You should have included some information
on the Honda Insight in your April 2nd discussion of energy recovery technology
and problems the Prius has had.
The Insight functions in nearly the
reverse of the Prius in that the gasoline engine is the primary motivating
force with the electric motor acting more like a turbo-charger. No
Insight owner can be stranded due to the batteries being drained.
In fact, I have driven in the Rockies with a completely drained battery
in my Insight. Also, Honda has experimented with an ultra-high capacity
capacitor to replace the batteries for quicker re-charging and discharging
capability (see Internet articles on the Dualnote). My personal opinion
is that a combination of SHEP and a Honda-like version of hybrid power
would produce cars / trucks the American public would like while significantly
reducing gasoline consumption.
Thanks,
C. Burt C
On Calypte Biomedical
Hello,
What is up with Calypte? Are they
going to split shares?
Thanks,
Marty
OTC Journal: Marty- As we
stated in our review newsletter last weekend, we are not optimistic about
the future of the Calypte's stock price, which is a different issue from
the future of the company. Management continues issuing enormous numbers
of free trading shares below the prevailing market. Recently, the company
issued another 44 million options, exercisable at $.025, and convertible
into free trading shares. The suggests the shares will now trade down to
$.025 to find support.
Unless the company manages to consummate
a relationship with a major pharmaceutical company, we believe the stock
price will continue grinding lower under the severe pressure of excess
supply.
Calypte announced they will be seeking
shareholder approval for a 1:30 reverse stock split, which must be viewed
as a negative for share value in the short run. This was announced after
the market closed on Friday.
Post reverse split, the company's
market value will be less than $10 million. We believe the technology alone
is worth considerably more.
If they can raise capital with some
entity who is interested in owning a piece of the technology, instead of
stock they can immediately sell into the market at a discount, this one
would have a chance to be a superstar.
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