New Stock Pick: Long Rosetta Stone (RST) & Short IAC Interactive (IACI)

By: ispeculatornew
Date posted: 06.14.2010 (4:23 am) | Write a Comment  (1 Comment)

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In last week’s premium newsletter, I had discussed Rosetta Stone and have been gaining interest in the recent IPO. To those who do not know the company, it helps students learn languages and is probably the best out there. The company does spend a lot on advertising which seems to drive most of the sales and those have been growing quickly in recent quarters. Can Rosetta Stone keep it going? I’d say yes. They still have many possible sell avenues out there including the very quickly growing mobile market. It is stunning to me to not see a Rosetta Stone Iphone app where it would almost certainly be a major hit. The official reason is that Rosetta’s software is built with Flash which is not supported by the Iphone. That sounds like a bogus explanation. There is no doubt that the costs incurred to develop the software would be worth it and many many potential customers have been asking for it. Hopefully it is in the works and once that is released it will certainly help sales.

Valuations out of whack

Rosetta currently trades on a P/E ratio of 21,84 which does not seem unreasonable but when I see a company like IAC Interactive trading at a ratio of 29,32, I feel like there is a major mismatch. I just do not see any way that IAC could match growth from Rosetta Stone so seeing it trade at a higher ratio is odd to me. IAC has actually experienced a decline in sales in recent months so why it would trade there is beyond me. The company has lots of potential but that has always been the case and it has never come to reality, I see no reason for that to change.

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1 Comment

  1. Comment by icIncome — June 14, 2010 @ 5:02 pm

    I would buy that IPO.

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