This morning Incredimail (MAIL) announced solid financial results which support my belief that this is one of the most undervalued Internet businesses I can currently find.

When I read about the incredibly high valuations assigned to many recent Internet content acquisitions (e.g. last week Daily Candy was sold for over $100 million), it amazes me that one can still buy MAIL (at the current price of about $3.60) for a mere $12 million enterprise value. This price tag is for a business that comfortably generates $20 million a year in in online revenue (mostly via Google advertising) at over 90% gross margins! A more reasonable, and still quite conservative, valuation would be at least 2X revenue + cash, or about $6 per share.

I expect MAIL to reach this target price or higher in 2009. By then the company will have launched its new products and up-front development expenses will go down, leading to a substantial increase in the bottom line. Improving earnings momentum and a ridiculously low valuation will attract investors into the stock.