World Wide Web Investment: Here Today, Gone Tomorrow?
T. M. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ah, the internet... how I hate it. Still, we can't do without, and when desires become demands and wants become needs, there's a dollar to be made. Admittedly, dot-coms and their ilk have seen their share of ups and downs. If you're looking to invest in the web, it’s important to learn just how well-positioned a company is before investing in them; the constant technological innovation of the internet leaves slower businesses in the dust.
More and more, one thing we all need is protection. AVG Technologies (NYSE: AVG) is a popular virus, spyware, spam and malware filter, and it's partly free to boot -- a concession AVG must make against competitors like Intel Technologies (NASDAQ: INTC) subsidiary McAfee, who has ways to deliver their product directly to consumers' computers.
One worries about the thoroughness of AVG's protection, however, when one sees they've not been very thorough in safeguarding their finances. Current ratio is a quick-and-easy indicator of a stock's health, especially for a smaller company such as AVG which may lack the resources to bail itself out in the long term. With a current ratio of 0.7, AVG is struggling.
But T.M., you might say, AVG could be using its profits to expand, research, etc. etc. Their declining margins, however, tell another tale: one of a company whose long-term solvency and profitability is in doubt.
Bigger Company, Same Problems
Larger companies often offer financial stability that appeals to the long-term investor, and so stock like Symantec (NASDAQ: SYMC), with its market cap of nearly $15 billion, well outclasses AVG's $700 million cap. Nevertheless, SYMC's current ratio clocks in at 1.06, not much better than AVG's -- and certainly worse than most of SYMC's competitors, such as Google or Microsoft. Nevertheless, they remain statistically overvalued, as a price-to-book ratio of nearly 3 and a forward PEG of 1.87. When a company is overvalued, but remarkably lacking in resources, one begins to worry.
Once again, you ask, couldn't this be due to aggressive growth on Symantec's part? If so, the results are dismal: over the past four quarters, SYMC has experienced an average growth in sales of 2.6%, lagging behind a concomitant increase in cost of sales of 3.5%. Declining efficiency and solvency and an overvaluation of the stock make this a worrisome stock to invest in.
A Sense of Risk & Reward
Comparatively, cyber security firm Websense (NASDAQ: WBSN) is far more highly regarded by the CAPS community here at the Fool. 34% below its 52-week high, bargain-hunters may be wondering if now is the time to buy; a PEG of 0.36 in the midst of that drop tells us that WBSN could easily recover that loss, and though they aren't posting the most amazing numbers, they are nevertheless beating expectations on earnings.
What may give you pause is WBSN's current ratio of nearly 0.7. That's well below the margin of comfort for a more cautious investor, with receivables a fair chunk of sales every year and long term debt almost matching the company's cash on hand, sometimes even surpassing it. This amounts to suspicion on my part. Too many times has the web burned investors drawn in by supposed undervalued, high-growth-potential stock that lacked the financial soundness to survive in the long term. For now, I intend to keep an eye on WBSN.
tmloyd has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. 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!