3 Stocks Pushing The Internet Industry Lower

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

The Internet industry as a whole closed the day down 1.3% versus the S&P 500, which was unchanged. Laggards within the Internet industry included LookSmart ( LOOK), down 2.4%, SMTP ( SMTP), down 2.9%, BroadVision ( BVSN), down 1.6%, Local ( LOCM), down 25.2% and Synacor ( SYNC), down 2.7%.

TheStreet Ratings Group would like to highlight 3 stocks that pushed the industry lower today:

Local ( LOCM) is one of the companies that pushed the Internet industry lower today. Local was down $0.43 (25.2%) to $1.29 on heavy volume. Throughout the day, 311,671 shares of Local exchanged hands as compared to its average daily volume of 75,800 shares. The stock ranged in price between $0.95-$1.50 after having opened the day at $1.50 as compared to the previous trading day's close of $1.72.

Local Corporation, a technology and advertising company, provides search results to consumers who search online for local businesses, products, and services in the United States. The company operates in two segments, Paid Search and Daily Deals. Local has a market cap of $39.6 million and is part of the services sector. Shares are up 9.2% year-to-date as of the close of trading on Wednesday. Currently there are 2 analysts who rate Local a buy, no analysts rate it a sell, and none rate it a hold.

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TheStreet Ratings rates Local as a sell. The company's weaknesses can be seen in multiple areas, such as its poor profit margins and generally disappointing historical performance in the stock itself.

Highlights from TheStreet Ratings analysis on LOCM go as follows:

  • The gross profit margin for LOCAL CORP is currently lower than what is desirable, coming in at 30.76%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.90% is significantly below that of the industry average.
  • The share price of LOCAL CORP has not done very well: it is down 9.96% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, LOCAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • LOCM, with its decline in revenue, underperformed when compared the industry average of 27.5%. Since the same quarter one year prior, revenues slightly dropped by 0.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • LOCM's debt-to-equity ratio of 0.82 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.75 is weak.

You can view the full analysis from the report here: Local Ratings Report

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At the close, SMTP ( SMTP) was down $0.18 (2.9%) to $6.12 on average volume. Throughout the day, 14,236 shares of SMTP exchanged hands as compared to its average daily volume of 11,900 shares. The stock ranged in price between $6.09-$6.25 after having opened the day at $6.10 as compared to the previous trading day's close of $6.30.

SMTP, Inc. provides Internet-based services to facilitate email delivery worldwide. It offers services to enable businesses of various scales to outsource the sending of outbound emails. SMTP has a market cap of $31.9 million and is part of the services sector. Shares are up 340.6% year-to-date as of the close of trading on Wednesday. Currently there is 1 analyst who rates SMTP a buy, no analysts rate it a sell, and none rate it a hold.

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TheStreet Ratings rates SMTP as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from TheStreet Ratings analysis on SMTP go as follows:

  • SMTP's revenue growth trails the industry average of 27.5%. Since the same quarter one year prior, revenues slightly increased by 6.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • SMTP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 23.62, which clearly demonstrates the ability to cover short-term cash needs.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The gross profit margin for SMTP INC is currently very high, coming in at 78.33%. Regardless of SMTP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 10.26% trails the industry average.

You can view the full analysis from the report here: SMTP Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

LookSmart ( LOOK) was another company that pushed the Internet industry lower today. LookSmart was down $0.03 (2.4%) to $1.23 on light volume. Throughout the day, 2,080 shares of LookSmart exchanged hands as compared to its average daily volume of 27,700 shares. The stock ranged in price between $1.23-$1.26 after having opened the day at $1.26 as compared to the previous trading day's close of $1.26.

LookSmart, Ltd. provides search and display advertising network solutions in the United States, Europe, the Middle East, and Africa. LookSmart has a market cap of $7.2 million and is part of the services sector. Shares are down 38.5% year-to-date as of the close of trading on Wednesday.

TheStreet Ratings rates LookSmart as a sell. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Highlights from TheStreet Ratings analysis on LOOK go as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 83.7% when compared to the same quarter one year ago, falling from -$1.01 million to -$1.86 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, LOOKSMART LTD's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$1.06 million or 69.77% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 43.19%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 77.77% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • LOOKSMART LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, LOOKSMART LTD continued to lose money by earning -$0.93 versus -$1.92 in the prior year.

You can view the full analysis from the report here: LookSmart Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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