Infospace (INSP) is an interseting stock: Here is a profitable company trading at a Enterprise value/EBIDTA of 1.5, a price to sales ratio of 1, with $223 million of cash in the bank.
In fact, with Infospace trading at about $7, that’s only $1 above its cash position, which is $6 per share. This stock is trading like a company that is about to lose a ton of money. The interesting thing is that the operating cash flow over the last 12 months is +$34M, which means it’s actually putting money in the bank. What gives? Skeptics could argue that this company, which restructured several years ago, has lost its technology edge and is only a bit player in the Internet search market. But the upside is that you are buying the company only $1 above the value of its cash so essentially you are getting a call option on its growth for $1.
I believe this is a decent bet going into year-end, where Internet advertising and services sector is bouncing back, and Infospace traditionally has its strongest quarters in the last quarter of the year. I have initiated a position around $7 and might buy more if it dips below $7. My stop is at $6, its cash position. The price target is $10 for a risk/reward ratio of 1/3 on the trade.
(Disclosure: Long INSP)