Monday, April 14, 2008

more on app

shares of app traded down 10% this morning to $7.50 in reaction to a negative article published by the journal friday night, and here's a little update on this interesting stock that i'm watching very closely. app sold off early last week on heavy trading volume, despite reporting strong march sales numbers thursday, implying that some market participants caught wind of the story ahead of its publication.

while it was factually correct, the article left out a number of important items. for example, the journal noted that the company has weaknesses in its accounting procedures, but the company is currently working to become compliant with sarbox and has hired consultants to help get its house in order.

in addition, the journal failed to note that while app does not have the usual bunch of C-level executives -- such as a chief operating officer -- in place, the company has said it continues to look for key hires while avoiding cookie-cutter candidates who wouldn't work in app's unusual corporate culture. plenty of retailers, such as anf and gps, have deep management teams, but that hasn't stopped their sales growth from falling apart.

also, the journal mentioned a sexual harassment lawsuit filed by an employee, and how app's insurance company refused to pay any damages or legal fees related to the case. plus, it referred to a $10 million lawsuit filed by Woody Allen, whose image was used in a satirical app ad. however, even if the company lost both of these cases it would be able to absorb the losses, especially since the company raised $67 million through warrant sales in february -- a fact that the journal piece conveniently ignored.

app is not a low-risk stock. this is a very early-stage growth story, and the stock is being knocked down not because of a lack of future growth opportunities, but because of media coverage of past failures. i think this stock has the potential to double or triple over the next few years.

disclosure: n/a, but looking closely - do your own DD!

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