Two Insiders Bought Web.com

Web.com is best compared to other businesses providing software and services to businesses. These include Adobe Systems Incorporated (NASDAQ:ADBE), ValueClick Inc (NASDAQ:VCLK), Paychex, Inc. (NASDAQ:PAYX), and Oracle Corporation (NASDAQ:ORCL). These companies are all profitable: Paychex and Adobe share a trailing P/E multiple of 22, while ValueClick and Oracle trade at 17 and 16 times trailing earnings, respectively. Paychex and Adobe also are expected to see very little earnings growth over the next year, placing their forward earnings multiples in the 20-21 range, and it is true that revenue growth at each company has been low (though positive). We think that we would avoid both of these stocks.

$1.5 billion market cap marketing provider ValueClick, as we’ve mentioned, is more reasonably priced in terms of its trailing P/E. Earnings were down 38% last quarter versus a year earlier, but revenue was up strongly and analysts expect the company to recover as it trades at only 11 times consensus earnings for 2013. Oracle also has a forward P/E of 11, though in this case it is based on the company continuing growth rates of net income similar to the 11% higher numbers it reported in its most recent quarter compared to the same period in the previous year. Oracle was also one of hedge funds’ ten favorite tech stocks for the third quarter (see the full rankings). We think either of these companies, Oracle in particular, make for better buys than Adobe and Paychex.

Web.com is a tougher call- if it can hit analyst targets, it will prove very undervalued- but that stock still seems a bit speculative to us. The consensus insider purchases, of course, are also a positive sign and we certainly wouldn’t be short the company. It will simply take more time for us to recommend buying Web.com, particularly with recent trends resulting in greater net losses.