Looking for Answers on Answers.com's Wild Trading

I want answers. About Answers.com (ANSW). A small-cap Internet stock with little institutional ownership, Answers.com is an online reference site once known as GuruNet. The site (and the company) have been around for years; the company went public in 2004 at $5 a share.

The company doesn’t make much money; the company has forecast June quarter revenue of $2.8 million to $3.2 million; which compares to $2.9 million in the first quarter. The company expects to lose between $75,000 and $475,000 in the quarter on a pro forma basis.

Answers.com shares have been trading wildly since mid-May. On May 17, the stock was at $10.14; the shares then ratcheted steadily higher: by Friday’s close, the stock has reached $17.12., a gain of $6.98, or 69% in just two weeks. Monday, the stock began sputtering: the shares were off $2.35 at $14.77.

So what the heck is going on here? Bruce Smith, the company’s VP of strategic development, said the company has no comment on the trading of its shares. He suggested I talk to someone on the Street. Which I did.

Colin Gillis, an analyst at Canaccord Adams, has a Buy rating on the stock and a $21 price target. But he also says there isn’t any news to explain the weird trading in the stock. He points out, though, that the stock was recommended prior to the start of trading on May 21 by an advisory service run by Jonathan Lebed, on the site lebed.biz. You might remember Lebed, who is famed for being the youngest person ever sued by the SEC for stock manipulation. Apparently, people still listen to the guy. The shares immediately jumped $2.27 on May 21, a gain of 17.5%, and continued to march ever higher.

Gillis also notes that the stock got some lift from the buyout speculation that accompanied the recent wave of acquisitions in the Internet advertising sector, which spilled over into content companies. That said, Gillis said he does not believe the company is up for sale. He does say that the company is in the process of building out its own advertising sales force, so it can stop being so reliant on Google (GOOG) ads for revenue; he thinks the company’s revenue in the December quarter should jump to $5.5 million.

As for the sell off in the stock Monday, maybe it was nothing more than profit-taking. Gillis notes that on this Merger Monday, there were no buyers for Answers.com. Maybe someone was expecting otherwise.

ANSW 1-yr chart: