Due for a 25% Bounce

Written by GSCR Staff   
Monday, 15 October 2012 09:37

It is not uncommon for a stock to drop following the announcement that it is acquiring another firm.  Moreover, it is typical for the said stock to decline if there is a near term negative effect on results. But, a 25% drop? That is too much and in our opinion, provides a buying opportunity.

Here is the 411. CafePress (NASDAQ – PRSS - $5.95) is an operator of an e-commerce platform enabling customers to create, buy, and sell various customized and personalized products worldwide.  Late last week, the Company announced that it was buying EZPrints, one of its competitors. 

While it will not be accretive (it will actually be negative relative to near term EBITDA and capex) it will be very positive for the top-line and bottom line over the longer haul.

As a result of the deal, PRSS will be an even bigger player in the space.  The Company will add to PRSS’ already impressive 15M members, 500 product categories, 300M unique products, and 3M shops. The pro forma is a tad unclear but we think that the stock could return to $6.00 within 90 days, and that all of the financial risk from the deal is reflected in the stock.  All that is left is the usual execution risk and with the expectation that Q4 will be strong, we like the rare opportunity to be a contrarian on a stock whose chart screams SELL.

 

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