Geerlings & Wade's Day in the Internet Sun

The question now becomes: Will GEER fall -- Icarus-like -- out of the day trader's favor?
Author:
Publish date:

A lot of day traders and BBS mavens think

Geerlings & Wade

(GEER)

is a Net stock. But the company's management is not sure, and the only brokerage analyst who covers it thinks it could be -- but surely isn't one yet.

Of course, none of that uncertainty prevented Internet-crazed buyers from bidding the stock from about 3 in mid-November up to a three-year high of more than 12 on Dec. 31, when it closed at 9 3/16.

Blame at least a part of that on the media. Right after Drinks and Diversions

wrote about GEER on Nov. 29, the company suddenly got discovered by

Barron's

,

The Wall Street Journal

and

CBS Marketwatch

, all at once. The result was a frenzy of buying that climaxed on Dec. 31 with record trading volume of 2.6 million shares. This was for a stock with only 3.7 million total shares outstanding, a 1.8 million-share float and a prior average trading volume of about 21,000 shares per day.

In the Nov. 29 column, we wrote that "some of the current Internet glow has rubbed off on the company's shares ... although, according to

president Jay Essa, the company is getting only 2% or 3% of its sales from the Net." We also pointed out that unlike most Internet stocks, Geerlings & Wade was profitable, and seemed poised to sustain steady, albeit modest, profits.

Now, certain fingers have been pointed at this column for lighting the fuse that launched December's ramp-up. But there's no way that any rational person could read that column and think of GEER as an Internet stock ... the company is merely a traditional mail-order retailer getting a minuscule but growing amount of its business from the Web. But hey! Rationality is in short supply these days.

"The chat boards -- rather than any kind of fundamentals -- are driving them like they are another Internet stock," says analyst Gina Paglucia of Boston-based

Fechtor Detwiler

, who underwrote the GEER IPO. Paglucia finds it ironic that GEER's very conservative, tight-fisted management is being associated with the fast, loose and edgy world of the Internet. "That's not their style; they're not going to go out and spend a bunch of money if that's going to hurt profits."

That slow, deliberate attitude resulted in a web presence (

www.geerwade.com) that until a remake last fall was nothing less than embarrassing -- replete with typos, poor selection, no online ordering, limited selection and a confusing layout. But even with the cosmetic remake, the site still falls short of Amazon-like aspirations, offering a mere 86 wines (42 red, 44 white) for sale when everyone knows the Web is all about offering everything to everybody. Of course, nobody's making a profit offering everything to everybody (yet) -- but that's another discussion.

Management itself is ambivalent about GEER's place in the constellation of Internet stars. True, the company did join the parade of outfits issuing press releases about its Internet activities -- president Jay Essa said they issued the Dec. 31 press release "in response to numerous inquiries from market observers." But the release provided little other than a description of changes intended "to make our Web site more friendly, easier to order from and

able to provide access to purchase history for our customers." Even Essa's characteristically conservative statement that "e-commerce looks to be an important sales channel for us in the future, but we intend to be cautious in our approach to developing it" didn't seem to dampen the feeding frenzy.

Some of the company's caution probably stems from the fact that GEER had -- prior to Essa's arrival -- been burned by irrational exuberance once before. The company went public in 1994, and saw the stock almost double in the first year. But then a steady stream of red ink (GEER didn't make its first profit until 1998) body-slammed it down to about 5 in late 1996, a price near which it has regularly traded until December's leap.

Another problem may be that GEER has a pattern of insider trading, a pattern that is bound to provoke some second thoughts. Founders Wade Phillip and Huib Geerlings (both officers and directors with no day-to-day involvement) have sold almost 208,000 shares (with no buys) in the past 12 months. And while CEO Essa and CFO David Pearce have been buying, the 6,220 shares they acquired pales in comparison to the sales by the founders.

Paglucia thinks GEER has the potential to be an Internet player, "but they aren't yet." In the meantime, the shares have plunged some 22% -- from over 9 down to 7 in the first trading week of the new year. Perhaps the day traders realize, after all, that this is a traditional catalog retailer. And that, like most traditional retailers, its "dot com" wings are probably made up of a bunch of Internet-frenzy feathers and some chat room wax.

Lewis Perdue is the editor and publisher of

Wine Investment News, a comprehensive site offering breaking news and analysis of the 22 publicly traded wine and liquor companies, and private wine partnerships. While Perdue does not hold any positions in the companies discussed in this column, he is the Chief Technology to the e-tailer

Wine Society of the World

, which may be discussing purchasing agreements with GEER and other wine companies. He can be reached at

lperdue@ideaworx.com.