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It's no secret that dot.coms and Internet stocks have been clobbered, with many yet to recover from their steep losses. Are any of these limping shares primed to snap back and worth look at? Some pros think so, and one they favor is Neoforma.com (
NEOF
), which connects buyers and sellers of health-care products and equipment on the Internet.
Neoforma.com was one of the hottest dot.com IPOs this year. It went public on Jan. 24 at 13 a share and jumped to 48 the next day. In a month, the stock had soared to more than 73. But, it was downhill from there -- way downhill. It's now trading at 3 1/16.
"The big hit that Neoform.com took represents a significant opportunity to get into the stock," argues Anthony V. Vendetti, a senior vice-president for research at New York investment firm Gruntal. He thinks that based on a conservative analysis of revenue growth and projected earnings, the stock is worth 16.
MULTIPLE VICTIM. Vendetti says the company is "poised to become the leader in the e-commerce B2B [business-to-business] space for the health-care industry." Neoforma.com provides an online marketplace where manufacturers and distributors can list and sell their medical products, both new and used. Hospitals and health-care providers spend more than 30% of the cost of goods in moving and handling supplies, while other industries spend less than 10%, says Vendetti. So he expects health-care players to look for new ways of making their supply chain more efficient.
Neoforma.com's stock was a victim of multiple events: A couple of months after it went public, the stock market took a sharp dive, and the stocks that swooned the most were the Net and dot.com shares. That was followed by a sudden investor disenchantment over the B2B concept, which added to Neoforma's misfortune. And then on Mar. 30, the company announced that it was merging with Eclipsys (
ECLP
), a provider of information software to the health-care industry, and with Healthvision (
HVIS
), which collects clinical data. Technically, says Vendetti, Eclipsys was to buy Neoforma.com and then merge with Healthvision. "Investors didn't understand the agreement, and many bailed out of Neoforma.com after the merger was announced."
Neoforma.com's stock went into a tailspin: Trading around 30 at that time, it fell nearly 70% within days. Yet even though Neoforma scuttled the deal in May, the stock still hasn't recovered from its steep loss.
GREATER CHANCES. Since then, the company has signed an exclusive 10-year agreement to provide e-commerce services to privately held Novation, the largest procurer of products and equipment for the health-care industry. In exchange, Novation took a 40% stake in Neoforma, with an option to buy more based on certain conditions. Novation represent some 30% of U.S. health-care procurement annually.
"The alliance with Novation increases Neoforma.com's chances of great success in the business and gives validity to our revenue forecasts," says Vendetti. With the Novation deal, Vendetti expects Neoforma.com to sign up an additional 236 hospitals in 2001 and 169 in 2002.
He expects Neoforma.com's estimated operating revenue of $9.7 million this year to jump to $45.5 million next year, and to $104.1 million in 2002. The company will still be in the red this year and next. But Vendetti figures it will be profitable earlier than expected, in the third quarter of 2002, when he expects Neoforma to post earnings of 2 cents a share. By 2003, the analyst sees earnings of 31 cents a share. To Vendetti, the stock may be "out of sight" even before the earnings forecasts come to fruition.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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