This is a tale of Wall Street that would be funny if it weren't so sad and typical. It's the story of Salomon Smith Barney analyst Tim Albright and his touting of e-commerce company priceline.com (PCLN) to the bitter end. It could just as well be about dozens of other analysts and well-known firms of the day.
Albright, 35, has been an analyst at Salomon Smith Barney for six months. (It is also worth noting that his firm's investment bankers helped underwrite priceline's
initial public offering.) In that time he has been a relentless bull on the stock.
On Aug. 22, a mere seven weeks ago, Albright recommended in a report that investors buy the stock. After meeting with priceline CEO Dan Shulman, Albright wrote, "Under-anticipated upside potential in Q3, new growth categories poised for takeoff, and the prospect of profits get us jazzed." The report was titled "PCLN: Management Visit; The Business Is Much Better Than The Stock." He set a price target of $130 a share. The stock closed that day at $24.75.
On Sept. 27, nine days ago, Albright penned another report called, "priceline.com, ROIC
return on invested capital Inflection Is a Great Time to Buy." He wrote, "We are confident in priceline's bottom-line performance. This is not a 'buy it for the quarter' call, but rather, a 'buy it for the model' call. In our opinion, the PCLN model is about to bloom before our eyes and current levels in the stock offer a buying opportunity." He set a new 12-month target price for the stock -- $56 a share, 80 times his estimate of 2002 earnings. That day, the stock closed at $10.75 a share.
A week ago, on Sept. 29, priceline warned that it would miss revenue expectations because of lousy sales in the core airline ticket business. Albright hastily issued yet another report, saying, "To downgrade or not to downgrade. That is the question. Does it makes
sic sense to shut the gate when all the horse
sic are gone? Our attraction to priceline, all along, has been that it is a method of commerce that is extensible into many different transaction categories ... we are maintaining our Buy rating." His new price target? $25 a share. The stock closed that day at $11.88 a share.
Thursday priceline announced it was shutting down its grocery and gas
subsidiary. The stock price sank to $9 a share and Albright finally capitulated. He downgraded priceline to neutral and set a new price target of $8 a share. He wrote, "We are downgrading at the bottom. We liked the model too much and missed the sensitivities in priceline's business. No upside until Q1 '01."
Today, the stock has traded as low as $4.63 and lately was resting comfortably at $5.13.
I spoke with Albright by phone this morning and asked him how he could have been so wrong for so long and lost so much money of investors who took his advice. He said, "We were wrong on the scope of the business opportunity, and we were wrong on the underlying sensitivity of the priceline model to exogenous forces that impacted the pricing structure of the industry, and given the extent to which the business is levered to the optimism of the stock price, it all had a spiral effect."
I asked him what he learned from being so totally wrong on this stock all the way down.
He said, "There's a fundamental takeaway and a psychological takeaway. My psychological takeaway is that this was a momentum stock. ... Momentum stocks get punished as they fall. A corollary is that a lot of the valuation was based on a 'blue sky' psychology -- priceline as a method of commerce that can go anywhere, into any product category. When you get out of the 'blue sky' psychology, you end up with an online travel business. People look at comparable stocks like
that trade at single-digit multiples of next year's gross profit. That is how we will value priceline going forward."
Now he tells us. I'm sorry; that just doesn't cut it. Albright and the rest of the sell-side sheep masquerading as analysts owe investors an apology at the very least. They are in the business of offering investment advice. Where is the accountability when firms like Salomon Smith Barney and analysts like Albright can issue such utter dreck and get away with it?
I asked Albright what the reaction has been among his firm's clients to his utterly mistaken reports. "This has not been an institutionally held stock," he said. "The bigger institutions were perhaps more prescient than the sell side. It was a momentum stock." Translation: The little guys owned this piece of trash. That certainly makes me feel a lot better. Not.
at the end of our conversation. Today, eBay is trading around $59. Half-dreading the answer, I asked him if he liked the online auction service. "I have a buy on eBay," he said with a slight laugh. His target price in his most recent report is $112.50 a share.
Don't say you weren't warned.
What should happen to analysts like Albright?
They should have to go door-to-door, apologizing to investors.
They should receive their annual bonuses in priceline shares.
Their reports should be labeled "WARNING: This Advice May Be Dangerous to Your Financial Health."
They and their superiors should be hounded to Wall and Broad and spanked.
Brett Fromson writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to