Intelligent Speculator

It is never wise to chase gains. Some people will keep buying a stock even after it has had a significant runup. They will hope the run will continue and that a greater fool will buy the stock at a higher price than them. This is the case with MAMA and now is a great time to short the stock.

MAMA is a search engine that recently announced that it is adding video search to its website. The hype surrounding this sent the stock from two dollars to over eight dollars in less than a month. Well the party is over and the stock price is crashing back down.

An analyst that covers MAMA said he doesn’t expect the new video search to have a material impact on revenues. It doesn’t take much common sense to figure this out.

If you take a quick look at the two dominant search engines (Google and Yahoo) you will see that they already have video search. You can also search for videos on Youtube, which is probably the most popular video website on the internet. Why would you go to MAMA to search for videos? There are better places to search for videos already available.

Without an increase in traffic, there isn’t going to be an increase in paid clicks. Consequently, there won’t be any improvement in revenues and earnings. So what are MAMA’s financial results? Well, the revenues for the first nine months of this year have decreased 23% when compared to last year. MAMA has lost $0.33 for the first nine months of this year and in their last quarterly release they reported a loss of $0.18 (compared to $0.15 in the corresponding quarter last year). MAMA’s revenues are declining and its losses are increasing.

I would short this stock and look for it two drop to $2. It may find some support there.

MAMA has a low float and a lot of gamblers like to buy this stock. They may even try to pressure people shorting the stock and try to send it back up. If this happens just be patient. The hype and stupidity will die out and MAMA will definitely go back down.

Disclosure: I am not shorting shares of MAMA.