New stock pick: Long EBAY/Short KNOT

By: ispeculatornew
Date posted: 02.22.2010 (5:00 am) | Write a Comment  (2 Comments)

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After closing 2 trades last week, I will probably be making at least 1 new trade in the next few weeks and I’m now ready to get back in the line of fire. The new trade is a bit risky because of I am going short a stock that was just crushed after announcing more bad results. TheKnot(KNOT) is a company that I traded twice last year but continues to show little improvement since then. The company is dedicated to everything related to weddings and continues to grow but is unable to get good margins. The company announced it has created 275 new niche websites related to weddings. That does sound great but building so many websites reminds me of Yahoo and AOL, when you build many average quality properties instead of focusing on core specialties. At the same time, it is increasing the frequency of its magazine publications, tv presence and more. There just seems to be a lack of focus on The Knot’s part.

Is there a danger in owning The Knot? Yes. It does hold a lot of cash and because of that, its “discounted future revenues” could rise very slightly and still bring up an important price rise.

On the other hand, I’m surprised to see Ebay(EBAY) not getting more momentum. Sure, its auction business continues to show flat growth at best. But the real treasure lies in Paypal, Ebay’s ecommerce payment service. The announcement by Facebook that it would turn to Paypal for its electronic payments instead of a smaller less known solution or even instead of a “in-house” solution does mean a lot in my opinion:

1-Paypal continues to be the best solution for ecommerce transactions
2-No other competitor has proved able to come up with competition and there are no signs of significant solution either

So personally, I do think Ebay warrants a more favourable P/E ratio than The Knot which is not the case right now.

Disclaimer: No return is guaranteed and each recommendation should be considered within the investor’s individual situation. As with any financial investment, there are risks involved.

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  1. Comment by IS — February 25, 2010 @ 4:18 pm

    Opening prices:

    EBAY: 23.42
    knot: 7.95

  2. Pingback by Intelligent Speculator | Closing new trade — March 15, 2010 @ 4:15 pm

    […] have been kind to me the last few Monday’s and this is another instance as the trade that had Long Ebay/Short Knot had a solid day and I will actually be closing off the trade when markets open tomorrow. The return […]

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