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TheStreet Open House

Ancestry.com's Growth May Attract a Suitor

Ancestry's business has significant barriers to entry. The company possesses the largest and most easily accessible database of relevant historical information and a network of connected users. Consequently, its profit spreads are high. In the latest quarter, the gross profit margin widened from 80% to 84%. The operating margin extended from 14% to 24%. And the net profit margin widened from 7.1% to 15%. Analysts are notably bullish.

Eight sell-side firms now cover Ancestry and all of them advise purchasing its shares. A median 12-month price target of $30 suggests a return of 16%. The highest price-target for Ancestry comes from Piper Jaffray, which expects the stock to rise 39% to $36. BMO Capital Markets forecasts that the stock will advance 23% to $32. And Jefferies echoes the median target of $30. On the other end of the spectrum, Morgan Keegan offers a $27 target, suggesting that Ancestry will rise about 4%. Institutional investors demonstrate optimism.

In the latest quarter, 17 of Ancestry's 30 largest shareholders increased their positions, eight held steady and just five decreased their positions. Of the 100 largest investors, 58 purchased additional stock, 19 held steady and 23 decreased their holdings. Ancestry currently trades at a forward earnings multiple of 28, a 66% premium to the S&P 500 average. It has exceeded analysts' consensus earnings estimates for four consecutive quarters by a double-digit percentage. It has an earnings surprise average of 33%. The stock hit a 52-week high on Oct. 29 and is now 8% below that price level. It has advanced 86% in 2010.

-- Written by Jake Lynch in Boston.

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