Wall Street Giving Online Stamp Seller a Real Licking.

TALK about getting pasted[ldots]

Shareholders in Santa Monica-based Stamps.com Inc. saw their shares hit a 52-week high of $98.50 on Nov. 22. With nearly 50 million shares outstanding, Stamps.com then had a market cap of more than $4.81 billion.

But that was when Web stocks were hot. Now, they've come unglued. Last week, Stamps.com shares were trading for about $10, off about 90 percent from its top price.

The idea behind Stamps.com is simple. The company operates a Web site allowing businesses to download images of stamps (presumably on adhesive-backed paper) instead of having to trek to the post office (or supermarket) to buy postage.

But the idea has not quite taken off. For the quarter ended March 31, Stamps.com lost $36.9 million on revenue of $2 million. And investors in chat rooms have been going postal.

They complain that in the past six months, insiders sold 1.47 million shares, while buying just 188,000. They're worried, even though many market mavens now give less weight to insider sales because so many executives are being given stock as a form of compensation (especially at startups). Obviously, the only way for those execs to cash in is by selling shares.

That said, there's still no doubt that Stamps.com is facing challenges. There's stiff competition on a number of fronts -- from the sale of ordinary stamps by the U.S. Postal Service and established outfits like Stamford, Conn.-based Pitney Bowes Inc. (the mail meter folks) to similar e-outfits such as Redwood City-based E-stamps Inc.

Despite the daunting circumstances, it seems only a short-term bottom has been hit by Stamps.com shareholders. On May 26, Stamps.com pushed the envelope to its 52-week low of $8.50 a share, but since then it has rallied by more than 17 percent.

On the street, merger rumors are flying about many dot-coms, which leads to the question: Wouldn't a merger between Stamps.com and the mirror image E-stamps make sense?

Stamps.com chairman and CEO John Payne, 43, did not return calls last week to engage that possibility. But others in e-land believe the future will bring lots of mergers, if not for Stamps.com then surely for many other dot-coms.

Russ Nash, senior executive in the Santa Monica offices of Chicago-based Web consulting giant marchFIRST (formerly USWeb/CKS, with 9,000 employees), says he is consulting more on mergers and less on startups. "There will be ongoing consolidation in the Web business[ldots] We are brought in to help strategize, deal with implications for the brand name, and handle the technical side of a merger," said Nash. "It will be the trend."

Tale Often Told

It was just a small ad in the corner of the financial pages of a major local newspaper a few weeks back, but it spoke volumes about the wallflower role of small-cap stocks on Wall Street in this era of blue-chip dominance.

"How's This For Performance?" asked the ad, which extolled Foothill Independent Bank's "25 years of growth, stability and strength."

The Glendora-based bank, traded on the Nasdaq under the symbol FOOT, has reason to feel a little overlooked. It has booked six straight years of earnings growth, rising to $1 a share in 1999 from 63 cents back in 1993.

Problem is, the stock traded for about $10 a share back in 1993 and still does. Over that time, shareholders have seen their share of ups and downs. Foothill sank to $6 a share in the regional recession of the mid-1990s, then soared to more than $20 in 1998, in possible reaction to takeover rumors.

Still, when the dust settled, shareholders found themselves on the same small mound where they started, while the broad Nasdaq quintupled and blue chips posted double-digit gains year after year.

Of course, Foothill's fate is one that's being replayed hundreds of times on Wall Street. With a market cap of just $55 million, Foothill is not likely to get noticed by the behemoth mutual funds. Even a smallish $1 billion fund, with 50 stocks, would have to allocate about $20 million per investment -- much too large a stake to take in Foothill.

Thus, a mutual fund buying Foothill would drive the stock up on the way in and down on the way out.

In addition, on Wall Street, a small-cap stock without "sponsorship" -- that constellation of brokerages, money managers and mutual funds that decide to "support" a stock -- is about as sexy as a date with your sibling.

Meanwhile, Foothill executives have been very quiet of late. After not returning calls for a couple weeks, a secretary reported that Chief Executive George Langley has gone on vacation "for three weeks" and would be unavailable for comment.

Switching Sides

Most times, lawyer David Bartholomew is a denizen of very low-profile National Association of Securities Dealers arbitration proceedings, defending his clients (usually securities brokerages) against claims brought by customers.

Bartholomew's firm, Long Beach-based Keesal Young & Logan, is among the nation's premier defenders of brokerages in arbitration. (Customers with complaints against securities brokerages are compelled by contract and law into binding arbitration.)

But recently, Bartholomew was a plaintiffs attorney and represented brokerages Salomon Smith Barney and Prudential Securities in a high-profile suit the firms brought against Los Angeles Superior Court Judge Patrick Murphy. The brokerages alleged that Murphy engaged in a scheme involving $1.8 million -- designed to help a friend hide money from an ex-wife and creditors.

The suit was settled in early May, with Murphy admitting no wrongdoing. He since has been reassigned from Superior Court in West Covina to traffic court and is reportedly the subject of grand jury and district attorney investigations, along with a review by the state Commission for Judicial Performance.

Bartholomew last week would not comment on the Murphy case, except to say he was glad to be out of the limelight and back to his bread-and-butter -- defending clients in relative obscurity.

He says business is good.

"When you get volatile markets like this, you have investors who have lost money," he said. "They are unhappy, and often they try to get their money back by suing the brokerage."

Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.