Is AOL Overvalued?

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With shares of AOL (NYSE:AOL) trading at around $38.14, is the company an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

AOL has been receiving a lot of positive attention recently, but is all that justifiable?

AOL.com delivers content and publishes websites such as HuffingtonPost.com, TechCrunch.com, and StyleList.com. Most people don’t take advantage of Alexa.com, which is a site that provides information on the performance of a website. Looking at charts on Alexa.com is just like looking at a stock chart. The traffic numbers for a website can help indicate where it is going. Is it gaining traction or losing traction? Is time-on-site improving or weakening? How about pageviews-per-user? Bounce rate? These are just some of the stats that are available. In this case, we’ll keep it simple. We’ll just look at the two-year trends for traffic rankings.

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In regards to traffic rankings, AOL.com has seen a steady decline over the past two years. Over the past several months, that decline has evened out a little, but it’s still not a pretty picture. How could it be a pretty picture with all the competition that’s out there, including Google (NASDAQ:GOOG), Yahoo (NASDAQ:YHOO), Microsoft Corporation’s (NASDAQ:MSFT) Bing, and now Facebook’s (NASDAQ:FB) Graph Search? AOL.com has its work cut out for it in this area. TechCrunch.com and StyleList.com have also seen steady declines in traffic rank over the past two years. The only bright spot is HuffingtonPost.com, which has seen slow yet steady improvements over the past two years…

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