Today I established a new position in the portfolio, buying shares in Geeknet Inc. (LNUX) at $1.30 each, which is where they ended the day. Geeknet changed its name from SourceForge, Inc. in early November.
Geeknet is a network of community-driven media and e-commerce websites. It is a small company -- market capitalization is less than $80 million and there are approximately 60 million shares outstanding. The stock price is 1.7 times book value and there is no dividend. The current ratio is more than 5-to-1 and the quick ratio is more than 4-to-1. There is very little debt and about 50 cents a share in cash.
Geeknet has reported negative free cash flow, yet insiders have been aggressively buying the company’s stock for the past several months.
My hunch -- note the word, “hunch” -- is that the company may be taken private, or sold to another, larger outfit like Amazon. Of course, there is always the possibility that insiders have been adding to their stakes simply because they like the long-term prospects for the company. And insider buying alone doesn’t guarantee anything.
Anyone thinking about this absolutely needs to do their own due diligence. I’m in -- and could always end up with egg on my face.
Geeknet is a network of community-driven media and e-commerce websites. It is a small company -- market capitalization is less than $80 million and there are approximately 60 million shares outstanding. The stock price is 1.7 times book value and there is no dividend. The current ratio is more than 5-to-1 and the quick ratio is more than 4-to-1. There is very little debt and about 50 cents a share in cash.
Geeknet has reported negative free cash flow, yet insiders have been aggressively buying the company’s stock for the past several months.
My hunch -- note the word, “hunch” -- is that the company may be taken private, or sold to another, larger outfit like Amazon. Of course, there is always the possibility that insiders have been adding to their stakes simply because they like the long-term prospects for the company. And insider buying alone doesn’t guarantee anything.
Anyone thinking about this absolutely needs to do their own due diligence. I’m in -- and could always end up with egg on my face.
I've downloaded from Sourceforge multiple times as I use Linux on my laptop. I never considered them as an investment as I don't know where they get their cash flow from. Community software is typically open source and free.
I myself ended up buying a small position in BPSG (breakpoint securities) as a play as their fair value is estimated at 9 and they are trading in the low 5's. The current price unfortunately is above book value. I am totally new to value investing and really got inspired by reading my way through the Snowball book on Buffet - I am so now that I am still trying to wrap my head around fair value and book value.
Eric
Posted by: Eric | December 09, 2009 at 08:51 PM
@Eric: Book value can be a great measuring stick, or not, sometimes depending on industry. Book value is useful with insurance companies, for example.
I wish you well on this new journey of value investing -- I find it to be a process of constant discovery and fascination. My one bit of advice is this: don't just buy one or two "value" stocks. Even the best have bad investments and one needs adequate diversification. That may be 10 stocks or 20 or more.
Of course, if you're just buying a stock here or there with play money, no problem.
Posted by: John | December 10, 2009 at 12:04 PM
Interesting buy. Is there something in the business (like a new product/web site) that should start driving revenue growth again? Revenues have been declining for the last few quarters, and it looks like EBITA is negative 2 to 5 M each quarter
http://www.rocketfinancial.com/Financials.aspx?fID=8217&p=1&pw=221817&rID=1
At that rate they could burn through their cash pretty quickly. Or is it just a hunch over a takeout?
Posted by: Milo | December 10, 2009 at 12:18 PM
@Milo: It's largely a hunch the company will be sold or taken private. Though they say they expect media revenue to improve significantly, if I heard the conference call correctly.
Posted by: John | December 11, 2009 at 02:57 PM
You didn't get this idea from Motley Fool, did you?
I've been a consumer of geeknet's products and services since long before they were combined into one company. I read slashdot regularly, shop at thinkgeek, and download from sourceforge. I love the company. And they might make more money, or at least cut their losses, I don't know.
But a takeover? By who? This isn't the old well-lots-of-takeovers-happen-when-there's-no-synergy version of the greater fool theory is it? What benefit would they bring an acquirer, and how much better would Commander Taco do his job as a result of being in an ever larger organization?
Insider buying is great, and it surely means that some people who are close to the company see good things in the future, so I expect you will make money on your purchase, but I hope you have some idea of who might take them out. I doubt it will be Google. And the buyout could always go the other way - remember, so far, this outfit has grown through acquisition. Wikipedia might be a nice fit, and it isn't making any money right now. Craigslist? There are a lot of small FOSS projects out there that could fit right in.
Incidentally, on a completely different subject, I'm still in WHR and think it has bright medium-term prospects.
Posted by: Alex | December 25, 2009 at 12:15 PM
@Alex: Nope, didn't get this idea from Motley Fool. And it's not a "greater fool" play, either. Just a hunch on some things spelled out in the post reporting my purchase.
Posted by: John | December 25, 2009 at 10:31 PM