A Board Member Clicked “Buy” on ValueClick

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On December 13th, David Buzby, a Board member at ValueClick (NASDAQ: VCLK) bought shares of the company’s stock at prices generally between $19 and $19.50. While Buzby didn’t add to his direct holdings, he bought 3,500 shares for his IRA and his 401(k). His spouse’s 401(k) also bought 1,000 shares. ValueClick primarily provides technology and services to marketers but also operates its own websites including couponmountain.com and investopedia.com. Buzby had last bought shares in June 2011; this had been a smaller purchase, and had come at prices of about $16.50 per share (see a history of his insider purchases). Because studies show that, on average, stocks bought by insiders tend to beat the S&P 500 (read more about studies on insider trading), we think that it’s a good idea to take a closer look at these stocks when they come up to see if they do in fact look like good buys.

The company reported a 26% rise in revenue in the third quarter compared to the same period in 2011. Essentially all of this growth came from the Media segment, with much of it coming from acquisitions. However, ValueClick’s other two segments did report higher operating income, and with better numbers coming in from Media as well pretax income increased 25% (net income was down due to a tax benefit in Q3 2011). Earnings per share for the quarter came in at 31 cents, a bit higher than the average for the first two quarters of 2012.

On a trailing basis, ValueClick’s P/E is 17; if we annualize the most recent quarter, we get 16. Analyst estimates are for a very strong fourth quarter, and continued improvements in 2013 imply a forward P/E of only 11. We’re skeptical of seeing that sharp an improvement, unless ValueClick is going to somehow further improve how it has integrated its recent acquisitions; the trailing numbers, and certainly the figures from last quarter, should account for the benefits of these deals. The market is also wary, as the most recent data shows that 11% of the outstanding shares are held short. In addition, our database of 13F filings doesn’t show much hedge fund interest in the stock: the largest holder of ValueClick, out of the funds we track, was Chuck Royce’s Royce & Associates with a position of 1.8 million shares, a small position for that fund. Find Royce's favorite stocks.

As a combination of a marketing solution and a content provider, we would compare ValueClick to a set of businesses including Digital River (NASDAQ: DRIV), Yahoo!  (NASDAQ: YHOO), Google (NASDAQ: GOOG), and AOL (NYSE: AOL). The first three of these stocks trade between 15 and 17 times forward earnings estimates, which would place them at quite a bit of a premium to ValueClick if the Street is correct. We’d noted, of course, that investors should be skeptical that the company can improve to that degree; however, even looking at ValueClick’s trailing earnings it seems priced at about the same level as these peers. Digital River, a $470 million market cap commerce and marketing company, has been seeing lower revenues but has a large cash hoard. Yahoo, meanwhile, reported flat revenue last quarter versus a year earlier and we think that we would avoid the stock. Google’s financials- sales up, net income down- have been skewed by recent acquisitions, and we think that it’s probably best to wait before making a move there; the trailing P/E is 23, but we think that it has good growth prospects as well as the potential to achieve savings from better integrating Motorola Mobility Holdings. AOL is another special case; it too has a good amount of cash on its balance sheet, but it trades at 22 times consensus earnings for 2013 and just doesn’t look like a good value investment.

We aren’t sure that the sell-side has next year down right, but ValueClick does seem to be improving, including over the first two quarters of the year. If the company continues to grow, then given its trailing earnings multiple it may end up cheaper- though, of course, a significantly smaller-cap stock- than Google or Yahoo.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in GOOG. The Motley Fool owns shares of Google. Motley Fool newsletter services recommend Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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