This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Making the Value Case for Armstrong's AOL

NEW YORK (TheStreet) -- After quadrupling in price from $10 in August 2011 to more than $40 in May, investors seem to have gone asleep on AOL (AOL), again.

It required a mention by Jim Cramer on an Oct. 18 edition of "Mad Monday" to remind investors that AOL is still very much alive and kicking -- and was at that time trading in the low $30s. The stock jumped 3.1% the following Monday.

There was also an interesting blog post from Nyonnais around the same time on why he had taken a large long position in AOL recently.

Cramer argued that the stock is too cheap and the assets are too good to be ignored. Buying the shares gives you the growth potential of Huffington Post and TechCrunch as well as AOL's many various video properties, which actually serve up more video ads than YouTube. Those are the most exciting aspects of the portfolio even though most observers only pay attention to Patch and the dial-up business.

You get all these for a market cap of $2.8 billion. This for a company that generated net income of $500 million in the past year. This means you're getting the business for an Enterprise Value to EBITDA ratio of less than 5 times. In the meantime, the industry average is closer to 11 times and so-called sexy stocks such as LinkedIn  (LNKD)are closer to 35 times.

Even if you sold off the various acquisitions that AOL has made over Tim Armstrong's tenure, you get to a much higher number than the company's current market cap.

Nyonnais, a value/event-driven investor blogger from Switzerland, is making his bet not so much based on price but on AOL's strategic value to a buyer like Yahoo! (YHOO).

He argues that the dial-up business, which is still generating $500 million a year in cash flows, should be worth $1 billion in a wind down scenario. So you're really getting the Internet properties for $1.5 billion and that's attractive for Yahoo!.

Nyonnais argues that the brands part of AOL can bring in $800 million in revenue next year, while its third-party network can generate $700 million next year. That's $1.5 billion in revenue from a company that's being valued at $1.5 billion today (less the dial-up business).

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,086.63 -26.91 -0.16%
S&P 500 1,987.01 +3.48 0.18%
NASDAQ 4,473.6970 +17.6810 0.40%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs