Don't bet the farm on e-Book glow
Dear Mr. Berko: I've got a bee in my bonnet about the e-Book industry that it will push hardcover and soft-cover books off the shelves so the big booksellers will have to close their doors. Amazon and Sony have great e-Books right now, and when Apple comes out with their new e-Book, I think it will spell the beginning of the decline of the book publishing industry.
I would like to find a stock that's involved in this business but that hasn't been discovered. Do you have any thought on which stock I could buy and, hopefully, it sells for less than $10 a share? If you find a stock that could participate in the e-Book business in a big way, I'd cash in my IRA, my life insurance policy that I don't need any more, and buy the stock. And if I could hold it for 10 years and sell it for a lot of money, then I could really be a happy person.
-- M.M., Bethlehem, Pa.
Dear M.M.: Wow! I'd like to find another "Microsoft-In-a-Garage," too, hold it for 10 years and sell it "for a lot of money." While money won't buy you happiness ... it certainly makes misery much easier to live with.
I asked my friend, Nathan Detroit, who is a vulture venture capitalist, for a recommendation. His record is pretty good.
Detroit suggested a company called INNODATA (INOD-$7.71), a smallish $82 million revenue company that provides what is known as "knowledge process outsourcing" services, as well as publishing and related IT services. Because INOD's services also include digitization and conversation, authoring and copy editing, its management is focusing on the media-publishing business. And Apple could be the catalyst that introduces the e-Book in the coming nine to 12 months. Therefore INOD may be one of the few pure plays in this business. Don't go into hock; buy only what you can afford. So hold on to your IRA and your life insurance money and be mindful that your request for a ground-floor investment in the e-Book market is just one of thousands.
INOD is currently digitizing and converting thousands of books into an e-Book-ready format for Amazon and Sony, but the incentive here is the speculation that Apple will soon be releasing a tablet that allows users to download e-Books via iTunes. You are hoping that Apple's previous successes could lead to an explosive boom in downloading publications.
E-Book revenues are up 175 percent so far this year and growing. Despite this impressive growth, e-Book revenues represent less than 1 percent of the $20 billion book publishing industry, which, according to a recent Credit Suisse Report, could exceed $4 billion in the next five years.
INOD has a strong balance sheet with less than $300,000 in long-term debt, $23 million in its checking account and a book value of $1.70 per share. On the income side, INOD posted 2008 net income of $13.5 million on revenue of $82 million, which translates to a net profit margin of 16.4 percent, and that ain't chopped liver.
There are only two analysts following INOD, which only has 25 million shares outstanding. And while Detroit and I like this stock as a potential, classy speculation, I caution you and others to be conservative in your purchases.
And M.M., if you cash in your IRA and life insurance policy to buy INOD, I can almost guarantee that as soon as you buy several thousand shares, the price will fall by 50 percent in less time than Peter Piper can pick a peck of pickled peppers.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com.
