QuinStreet’s (NASDAQ: QNST)stock jumped this past week after the company announced preliminary quarterly results. The web performance marketing company’s excellent revenue growth put its top line above the typical analyst expectation.
QuinStreet is a leading provider of web performance marketing solutions. The company’s technologies and products provide customers and businesses with the data they need in order to pinpoint the optimal services, products and brands that suit their nuanced needs.
Executives stated they anticipate the uptick in business will only continue throughout the months and quarters to come. All in all, QuinStreet’s third-quarter revenue increased 45 percent compared to the same period a year ago. Company executives forecast the adjusted EBITDA margin as more than 8 percent.
The positive financial news noted above was released just one day after a popular short-seller identified the stock as a candidate for a potential downturn. Kerrisdale Capital argued the business’s revenue growth is fueled by malware redirects, phony leads and a single deal that does not provide considerable room for growth. This short-seller put QuinStreet’s stock value at $5-$7 per share. The stock is currently priced around $10.75. Yet, Kerrisdale Capital never contacted QuinStreet about its alleged revenue issues.
It appears as though the allegations against the web marketing performance company are baseless. Yet, it is important to note QuinStreet is a small cap stock that receives little attention. Such stocks are often priced incorrectly simply because the public lacks information about these businesses.
Is QuinStreet Overvalued?
It appears as though QuinStreet might be overvalued. Some stock market analysts claim the company is overvalued by 30 percent at it current price. If this is a legitimate quantitative analysis of the company’s stock, a fair price would be around $7 or $8 as opposed to the current $10 to $11 level. QuinStreet’s stock price is relatively stable when juxtaposed against other stocks.
If you are concerned about QuinStreet’s current stock price, consider the fact that the company’s profit is supposed to double cross the next two years. It appears as though QuinStreet will have a high cash flow that will eventually lead to a higher valuation. The question is when this valuation increase will occur. The challenge is to determine if the market has priced in the company’s positive outlook. Some are insistent the stock has surpassed the company’s true value. If this is the case, QuinStreet has minimal upside.
How Important is QuinStreet’s Price?
Some analysts believe price is only a small part of the QuinStreet puzzle. Once you dig down deep into the company’s fundamentals, you find some good news and some bad news.
As noted above, quarterly revenue is up significantly. Keep on digging, and you will find QuinStreet might be a bit too reliant on core customers. As an example, the short-seller noted above states nearly one-quarter of all QuinStreet’s revenue stems from Progressive Insurance.
It appears as though Progressive might account for upwards of 17 percent of QuinStreet’s business. It is awfully difficult to accurately predict what will happen to QuinStreet’s stock price in the coming weeks, months and years. If the accusations noted above are even partially true, this web performance marketing provider has some major hurdles to overcome.
The bottom line is QuinStreet is not a business or stock that is easy to understand.
Is QuinStreet a Buy, Sell or Hold?
The question is whether QuinStreet is trading at a reasonable price or whether the price actually reflects the value of the business. It is interesting to note QuinStreet has a low beta, meaning the stock is fairly stable compared to the rest of the stock market.
If you think the company’s current valuation is inflated, it is time to sell. You can always swoop in and scoop up more QuinStreet shares when the stock eventually dips. However, QuinStreet’s low beta means it might take some time for the stock to reach the $8 level. Once the stock eventually moves lower, those sitting on the sidelines will gradually reinvest their money and likely keep the stock fairly stable.
In a nutshell, those who own QuinStreet should take some profits off the table. Those who have been watching from the sidelines should wait for a better buying opportunity.
Regards,
Ethan Warrick
Editor
Wealth Authority
