What is it that is driving BackWeb Technologies (Nasdaq: BWEB)? When you look at a stock like this you ask yourselves what could have suddenly triggered such a wave of buyers for it. Last Friday’s volume of 1.5 million shares was the first time Backweb saw such a turnover since mid-2006, and before that at the beginning of 2006.
If you take a closer look you will find that from time to time, in intervals of around six months, this stock gets yet another wave of buyers, following which everything goes back to the way it was before, as if nothing had happened. BackWeb, as it happens, is not the only stock that has “flashes” like these. This happens with all the small stocks traded in the US - Israeli, Indian, and, of course true blue Americans. We also saw this happen last Friday to Terayon Communication Systems Inc. (OTC BB: TERN.PK), and wide-format print technology company Nur Macroprinters Ltd. (Pink Sheets:NURMF.PK).
This occurrence has another interesting side to it. Like a tsunami wave, it gathers momentum in a sea that looks perfectly calm, explodes with tremendous force and then retreats back into the waters of the sea again, with tranquility returning once more. The trouble is that a good many small investors get hit hard in the process, brief as it may be. Note that BackWeb started January with daily turnover of $900. Since then it has risen consistently from $3,000 a day to $14,000, and by last Friday it had reached $400,000, 100 times the turnover at the start of the month. There is no doubt in my mind that within the next day or two the volume will drop once more to a historical daily average of around 100,000 shares.
I am always intrigued by events like these. Who are these buyers that suddenly emerge from nowhere? Who are the sellers that have the merchandise to offer when prices are heading upward? And most interesting of all, what exactly was it that caused this upsurge, especially considering that there was no sign of any preliminary announcement that might have signaled what was about to unfold?
The explanations for occurrences like these are much simpler than people think, and they are closely related to developments in information transfer, transparency, and the amount of funds circulating on the market. BackWeb’s big jump at the end of last week was caused by two factors. One of these was the announcement at the end of December in which the company said that a top-three consulting firm would use the company’s award winning Offline Access Server (OAS) technology to provide its employees with mobile access to its Oracle ePerformance application to edit performance reviews and other performance data while disconnected from the network. The stock began to climb as the announcement was released.
But the real cause of last week’s tidal wave was the recommendations for BackWeb published at the weekend in two investment newsletters, otcpicks.com and thesubway.com, which countless traders visit in search of information on small growth companies. Both sites praised the Israeli software company, and it looks to me like they based their endorsement on the Oracle story back in December. Thousands of traders and small hedge funds read these reviews, and these are the only kind of investors that buy stock in such quantities. They try to cash in on positive developments in small companies like BackWeb whose stocks are trading at an historical low.
The fact is that the turnover consisted largely of small orders. After all, BackWeb’s upcoming financial report, in which it will post a loss of almost $4 million on annual sales of $5.3 million, hardly justifies such an avalanche. True, it has a market cap of $12 million and half of the company’s stock value is covered by cash, so there is a good chance that recommendations like these could trigger a “round.” As I have not read the reviews that the two sites based their recommendations on, I don’t know what caused all the excitement. There are plenty of people (millions worldwide), who spend their time searching for such reviews. After all, even with all the gains, 10,000 shares comes to $3,000, not such a significant sum in this day and age. I can only hope that those people trawling the web for information about BackWeb found something more significant than sycophantic reports on its deals.
After having observed the critical need for transparency in management in the case of Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), Ness Technologies (Nasdaq: NSTC) has now brought this home to me once more. The stock has lost 17% since Raviv Zoller announced his resignation, even though all the analysts and commentators (myself included) thought that this had little significance for the company itself.
Zoller has now been followed by company CFO Yitzhak Edelman who is leaving, seemingly because the company chose Apax Partners partner and former Comverse Technology (Nasdaq: CMVT) executive Sachi Gerlitz and not him as Zoller’s successor. Since the announcement of Zoller’s resignation, the number of analysts covering Ness with a “Buy” rating has fallen from seven to five, despite the sharp fall in price.
Having met Zoller and been impressed by his abilities, I thought about it again and I feel that it would better to wait this crisis out despite the fall in stock. This is because Ness has an edge over its many competitors in what I call “marketing maneuvering skills.” Based on the company’s history to date, Zoller managed to find a way into niches in which Ness usually had a technological edge over its competitors. The skill needed to achieve this is central to the management of a company like Ness, which competes against the big giants in the West such as EDS, and also numerous Indian companies that offer both quality and price.
As I mentioned last week, Zoller stepped down due to disagreements with the board over company strategy. True, Ness is not a one-man company but when investors look at the bigger picture the issue at stake here is the same one that brought Teva’s stock to a halt. It is, perhaps, rather like expecting people to buy NICE Systems (Nasdaq: NICE; TASE: NICE) shares if CEO Haim Shani were to announce that he was resigning his post as CEO.
Published by Globes [online], Israel business news - www.globes.co.il - on January 17, 2007
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