Following a disappointing auction, Sotheby's (NYSE: BID) lost over a third of its value in trading last week. Despite the downfall, Richard Moroney sees an opportunity to "bid" on the shares of the art auction firm.

The editor of Dow Theory Forecasts explains, "Sotheby's plunged in price after disappointing results for a major art auction triggered several brokerage downgrades. Following the drop, the company posted better-than-expected sales for the September quarter.

"However, because of losses on guarantees that Sotheby's provided to sellers in the disappointing auction, earnings were slightly worse than consensus estimates. For the quarter, the company lost $0.33 per share, an improvement from the per-share loss of $0.49 in the year-earlier period.

"Because of the seasonal nature of the art business, Sotheby's typically loses money in the September quarter. The company says it remains optimistic on the outlook for the art market for the remainder of 2007, and it seems Wall Street has overreacted to a single disappointing auction.

"While worries regarding the guarantees that Sotheby's provides and the general health of the art market could keep the stock under pressure in the near term, we view the sell-off as a buying opportunity.

"Trading at 12 times expected 2007 earnings, the stock seems undervalued considering the company's track record and outlook. Sotheby's remains a Best Buy."

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