Napster Shares (NAPS) are getting low

Submitted by Eric Cheshier on Thu, 12/20/2007 - 07:11

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Financial News

Is Lars from Metallica’s dream of Napster going out of business finally coming true? Or will the LARS ever-present underdog that is Napster (NAPS) come back swinging like Rocky Balboa vs Apollo Creed?

Napster shares just broke a new 52 week low today, down -6.44% to $1.89 a share.

Has anyone checked the company’s steadily improving balance sheet lately? Revenue and Net income are steadily increasing, while cash levels have improved significantly. Does this look like a business that’s going to close its doors anytime soon?

Financials (In millions of USD)

Income Statement	Quarterly (Sep '07)	Annual (2007)	Annual (2006)
Total Revenue	31.62	111.08	94.69
Gross Profit	9.45	32.44	25.48
Operating Income	-5.35	-37.41	-61.54
Net Income	-5.08	-36.83	-54.95
Balance Sheet
Total Current Assets	73.84	74.45	111.39
Total Assets	118.06	121.73	155.54
Total Current Liabilities	36.48	33.41	36.99
Total Liabilities	40.57	37.02	39.77
Total Equity	77.50	84.71	115.77
Cash Flow
Net Income/Starting Line	-5.08	-36.83	-54.95
Cash from Operating	1.11	-28.63	-44.53
Cash from Investing	11.57	11.48	-28.37
Cash from Financing	0.05	0.00	-14.91
Net Change in Cash	13.26	-16.74	-88.60

Napster is looking severely undervalued at these levels. The stock price decline after releasing their best earnings ever just doesn’t add up. On top of that, their partnership with AT&T is still in an early stage – they just released their first mobile phone that supports Napster Mobile. Investors shouldn’t count the partnership out; it could lead to a major source of revenue for the company in the near future.

The Stockmasters think Napster is a potential Value Play and although it is a high risk trade, the potential gain, especially if they get acquired, is well worth the risk.

Article written by Eric Cheshier

Co-Founder of theStockMasters.com

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