HowStuffWorks (HSWI)

[valuemanager]

HSWI is continuously burning shareholder value. Simple indicator is stockholder equity going down over the last 4 quarters from $32.6, $24.5, $21.9, $19.3 million. Net tangible assets look even worse $22.5, $18.7, $16.3, $13.6 million.

Revenue shrank from $116 to $88 thousand. With 53.6 million shares outstanding, revenue per share TTM is only $71.1.

Six month revenue ended June 30 was $214,000. That's a yearly run rate of $428,000.

This is only $0.008 revenue per share (yeah, less than a penny). With a hypothetical 10% profit margin (HSWI is actually lost 6 cents per share from Jan to Jun 2009, about 7 times revenue!), a P/E ratio of 738. Wow!

Ok, let's try to be fair and see what HSWI could potentially do with its assets. (BTW, they have about $14 million sitting in their cash accounts. That's a value of $0.26 per share. Admittedly, a comfortable cushion.) Now assume, they could generate a very nice 10% ROA (Google has 14%, Yahoo! 0.10%, HSWI currently -72%).

That would be a hypothetical $2.1 million net profit, which translates into $0.04 per share. Award a P/E multiple of 10 (pretty nice for a non-existing hypothetical profit of a cash burning company) and you get $0.40 of (highly optimistic) value per share. HSWI is worth much less.

This is not exactly a candidate for shorting, however, buyers beware!

Sources: SEC filings & SmartMoney.com

Disclaimer: I meanwhile carry a short position of 4000 shares.