PurchasePro stock at new low on analyst pessimism

Kevin Ferguson

Wednesday, May 16, 2001 | 11:26 a.m.

Many PurchasePro investors continued to sell their shares in the Las Vegas company this week following a downgrade by a financial analyst.

Stock in the Las Vegas-based Internet business to business purchasing company sunk this morning to a 52-week low of $2.25, down 11 percent from Tuesday. This follows a Tuesday downgrade of the stock by analyst Gavin Minar of Sands Brothers & Co. Ltd.

Minar lowered his rating of PurchasePro shares to "neutral" from a "strong buy."

Analysts have hammered the company lately, questioning PurchasePro's financial viability because the company in some business deals has accepted software swaps with strategic partners and has reported the value of the swaps as revenue.

Analyst George Santana of Wedbush Morgan Securities, who gave PurchasePro a rare "sell" rating last month, predicts the Internet business will become so cash-strapped by next year it'll be forced to fold.

"I have them running out of cash in five quarters, sometime in 2002," Santana said. "If revenue is coming in the door through these software swaps where they say, 'I'll buy your software if you buy my software,' the net revenue is actually zero."

PurchasePro spokesman Steve Stern disputed the criticism of Santana and other analysts.

"I think you have to look far closer at our filings with the SEC and that we have $80 million in cash and checks coming in," Stern said.

Analysts soured on the company and it was hit with a series of shareholder lawsuits after it missed earnings expectations last month after an unusual last-minute earnings warning and a delay in the issuance of the numbers.

Stern disputes that it's unusual for a company to do that.

"So we were late a day! We took the cautious avenue to satisfy the analysts," Stern said.

Shares in the four-year-old company, which develops marketplaces for businesses to buy and sell products online, plummetted 35 percent to $4.05 April 25, the day it was supposed to release its first quarter earnings, but delayed the release a day to get its books in order.

PurchasePro's shares have traded below $5 ever since.

David Garrity, another analyst who also downgraded the stock last month, is not quite as critical as Wedbush's Santana.

"We think the stock should be trading around this level until we see some improvement," said Garrity, of Dresdner Kleinwort Wasserstein.

He noted that PurchasePro is going through a transition and that the new chief financial officer, Richard Clemmer, formerly of Quantum, may help steer the company in the right direction.

"Time will tell," Garrity said. " The company has cash on its balance sheet and it is trying to build business (partly through a partnership) with AOL."