Bankrate, Inc. (RATE)

abitarecatania (98.68) Submitted: 9/11/07 3:14 PM : Start Price: $40.50 RATE Score: 11.84

From Agora Financial 10 Sep 07:

Considering that Bankrate does little more than publish interest rate data, why should its stock sell for 47 times earnings? Could such a Web site have a lasting competitive advantage? Why couldn’t sites with far larger audiences — like MSN Money, Yahoo Finance, or Google Finance — chip away at Bankrate’s core high-margin business?

Bankrate exhibits several traits of what you want to look for in a short sale:

1.An expensive stock price
2.A contracting customer base
3.A history of making value-destroying acquisitions
4.Aggressive accounting
5. A very generous stock option program.

An Expensive Stock

Bankrate describes itself as the owner and operator of “an Internet-based consumer banking marketplace ”:

Our flagship Web site, Bankrate.com, is one of the Web’s leading aggregators of information on more than 300 financial products and fees, including mortgages, credit cards, automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans, and online banking fees. We also own and operate Interest.com, a smaller, yet similar site, FastFind.com, an Internet-based lead aggregation firm, and Bankrate Print, which produces newspaper-based advertising and editorial products.

RATE is a pricey stock. Given its stratospheric valuation, the market expects Bankrate to deliver blistering sales growth as far as the eye can see.

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