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Friday, October 27, 2006

How Would Cramer Evaluate His Own Holdings of TheStreet.Com Stock?

If you were Cramer, how would you evaluate your 2+ million share holdings in TheStreet.com (TSCM)?

TheStreet.com (TSCM) did in fact meet EPS estimates and beat the revenue consensus yesterday morning, but its shares have rolled over and died. TSCM posted $0.11 EPS as expected and posted $12.9 million in revenues instead of the $12.45 million.

Unfortunately its subscription revenue growth was disappointing to some. It posted some 49% gains year-over-year, but only 3% sequentially. 3% sequentially for the Summer quarter of Spring is actually not that big of a sin if you consider that retail clients tend to not care about the markets in August and much of July. They call it the Summer Doldrums for a reason. But we are talking about a growth stock, and the calendar may not help.

But…..there are those that feel the company plans to shift to a new model that emphasizes advertising revenue over subscription revenue, at least somewhat. This may be a signal that the company feels it is going to get more cancellations or that it just won't get much more growth. Its advertising revenues were $3.7 million, or 28.6% of total revenues. It also made an acquisition of Weiss Ratings for a total cash layout of $3.2 million. It even has a $0.025 cash dividend each quarter, which is over a 1% yield now that the shares have dropped.

If Cramer's ratings fall sharply, it definitely will have an impact on TheStreet.com subscriptions. MediaWeek pointed out that Cramer's ratings were still up 9% last month, but it was apparently only 1 of 3 mentioned that posted gains. Now as we get closer to elections, the election cycle may draw away from non-political shows.

We also had a downgrade today on TSCM shares from Avondale, who cut its previous "market outperform" rating down to "market perform." The price targets on the street are still up around $13.00, but traders look like they are bracing for more potential cuts.

So, how would Cramer evaluate his own TSCM stock?

Before getting into estimates, please understand that it is thinly covered and there are some interpretations that have to be made to estimates. The street is looking for $0.45 EPS in 2006 and $0.60 in 2007, BUT it is thinly followed. TSCM has a trailing P/E ratio of 27 and it is projected to post 33% growth for 2007. It is roughly 100% EPS growth for 2006 though. On his PEG model of P/E over growth he would say a current P/E of 27 and forward growth (27/33) only generates a ratio of 0.8181. Maybe, he'd say "buy buy buy" on a nominal basis. The problem is that with a semi-switch in business focus means that the street has to take this on faith for actually more than one or two quarters. It is also worth noting that the P/E was considerably higher before this price drop in the last 2 days. That is the market making adjustments.

The current Short Interest for October was also about 3.9 million shares, and those look like they became profitable trades that haven't created a wave of short covering yet.

So the numbers can say all they want, and now many are scratching their heads. In the last year after Cramer started MAD MONEY, TSCM shares have gone from under $4.00 to over $13.00. Now they are back at $9.33 after a drop of $1.05 so far today and after a drop of $1.80 yesterday. This also looks like it broke under its 200-day moving average now.

He won't ever comment on TSCM because he can't say much, and is likely barred from discussing it. But it would sure be neat to see if we could overlay another identical situation. Unfortunately there isn't one.

Maybe Cramer would say "buy" and maybe he'd say "sell." According to the latest filing seen Cramer's direct share ownership in TSCM was 2,016,413 shares, but that is from outside info and meant for reference only. If that number is accurate, the post-earnings drop has cost him just under $5.75 million so far.

As far as how Cramer stands with the street, that is a controversy. Message boards flare up when a Cramer pick comes out, some with praise and some are venomous. Some love him, some hate him. I personally know traders that have made money going with him on many of his picks, and others that have made money shorting his calls after they pop. That is why I find it funny that people try to do a "Cramer Performance Track Record" because he can be used for trading opportunities either way. If you like the logic then buy, if you disagree completely with him then sell. Love him or hate him, but that makes a market.

Jon C. Ogg
October 27, 2006
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