REDF & SIFY: When Stocks Get Way Ahead of Themselves
It was a fun party while it lasted, but at some point, the market has to see justification for big gains. Otherwise...
It doesn't take long to give it all back, does it? Indeed, for some unlucky investors who stepped into Rediff.com India Ltd. (NASDAQ:REDF) and/or Sify Technologies Limited (NASDAQ:SIFY) at the end of April, in the shadow of huge runups, it's not even a matter of giving a gain back. Those investors were deep underwater from the trade's onset for these two must-have names.
So what happened that torpedoed REDF by 33% and SIFY by 43%? Uhhh, well..... nothing that should be a surprise.
In the latter half of 2010 and the first part of 2011, these two stocks were the beneficiaries of chatter (a lot of it) that India was going to begin a massive overhaul and upgrade of its internet delivery infrastructure. Since Rediff and Sify are right in the middle of it (Rediff is an Indian web portal, and Sify is basically an ISP...both are oversimplified explanations though), each stock stood to see a windfall once the upgrades got underway.
And it's not like Joe-Investor was gung-ho on the stocks against the better judgment of the media - plenty of professional stock-pickers were trumpeting the two companies as well:
There's a lesson to be learned in all this.... and perhaps two lessons.
The first one is simply that just because an entity says it's going to so something doesn't mean it will, and it certainly doesn't mean it will do it in the timeframe investors expect. It's a government operation, and though India's has proven to be as effective as any other state's government, like so many others, things cost twice as much as expected, and take twice as long to complete as expected. Both stocks traded as if the revenue growth was going to happen on six months or less. When the impossible expectations weren't met - poof. It's not unlike the popping of the dot-com bubble in late 2000.
The second lesson: The media propagates love for bad investments as well as individual investors. Take any tip with a grain of salt - these guys chase stocks just like many other people.
Given enough time, both of these names may end up being great investments. Over the last nine months though, both Rediff.com India Ltd. and Sify Technologies Limited simply put the cart waaaaayyyyy before the horse. We may need to burn off even more downside before the current stock price represents the current, plausible opportunity.
This reporter sees SIFY getting comfortable in the $4-ish area for a while where it is now, and is looking for REDF to be pressed another 30% to 40% lower before it's all said and done.
So what happened that torpedoed REDF by 33% and SIFY by 43%? Uhhh, well..... nothing that should be a surprise.
In the latter half of 2010 and the first part of 2011, these two stocks were the beneficiaries of chatter (a lot of it) that India was going to begin a massive overhaul and upgrade of its internet delivery infrastructure. Since Rediff and Sify are right in the middle of it (Rediff is an Indian web portal, and Sify is basically an ISP...both are oversimplified explanations though), each stock stood to see a windfall once the upgrades got underway.
And it's not like Joe-Investor was gung-ho on the stocks against the better judgment of the media - plenty of professional stock-pickers were trumpeting the two companies as well:
- April 8th: "An Internet Company Poised For Long-Term Growth (SIFY)" - Small Cap Investor
- March 28th: "...the opportunity before Rediff is huge. India has more than 700 million mobile-phone users but only 10.3 million broadband connections. As infrastructure expands and broadband use rises among the population, Rediff should be a winner." - Motley Fool
- February 18th: "Sify Technologies Ltd. (SIFY) starts off the list of stocks to buy this week. Operating in India this stock has seen tremendous gains since the start of September, up +128%. More recently, this penny stock is up +53% in the last three months as well. SIFY also has the potential for very quick growth, as evidenced by its +36% gain during a single week in January. While buying low-priced penny stocks is always a risky endeavor, SIFY has the potential to add to your portfolio in a hurry." - InvestorPlace
- February 9th: "The country itself plans to upgrade its infrastructure by increasing the number of broadband connections by 700% next year, providing growth drivers that both Sify Technologies and Rediff.com can capitalize on." - Motley Fool
There's a lesson to be learned in all this.... and perhaps two lessons.
The first one is simply that just because an entity says it's going to so something doesn't mean it will, and it certainly doesn't mean it will do it in the timeframe investors expect. It's a government operation, and though India's has proven to be as effective as any other state's government, like so many others, things cost twice as much as expected, and take twice as long to complete as expected. Both stocks traded as if the revenue growth was going to happen on six months or less. When the impossible expectations weren't met - poof. It's not unlike the popping of the dot-com bubble in late 2000.
The second lesson: The media propagates love for bad investments as well as individual investors. Take any tip with a grain of salt - these guys chase stocks just like many other people.
Given enough time, both of these names may end up being great investments. Over the last nine months though, both Rediff.com India Ltd. and Sify Technologies Limited simply put the cart waaaaayyyyy before the horse. We may need to burn off even more downside before the current stock price represents the current, plausible opportunity.
This reporter sees SIFY getting comfortable in the $4-ish area for a while where it is now, and is looking for REDF to be pressed another 30% to 40% lower before it's all said and done.
Bryan Murphy is a paid contributor of the SmallCap Network. Bryan Murphy's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
Advertisement
Advertisement
Do NOT buy or sell SIFY or REDF until you have read everything.
SmallCap Network provides comprehensive research and opinions on SIFY and REDF. |
 |
|
| Date: | May 25, 2013 | |
| Price: | Free | |
| Example Preview: |    |
|
