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The Party Takes
A Turn For the Worst- The Planet Descends |
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The stock and the company that could
do no wrong has finally given investors something to think about and come
back to earth a little. If you are concerned about the news that has come
out of Commerce Planet over the past couple of days, you might want
to step back and think about what it all really means.
Here's what happened. On Tuesday
after the market closed, CPNE announced it had entered into two
separate but similar agreements: Agreement 1 was the sale of 1.8 million
unregistered shares from existing shareholders to institutional investors
at $1.90. Agreement 2 stated the company would sell 3 million newly
issued restricted shares to those same institutional investors- also at
$1.90.
In typical knee jerk reaction fashion,
the market sold off on the news. The stock sold off to $2.70 early,
rebounded to $3, and closed at $2.81 as sellers processed
this new information.
Now that a day has gone by, let's
take a step back and think about what happened. As we all know, one of
the problematic issues with this stock has been the supply coming from
early financiers who have virtually a zero cost basis. If some of their
stock was included in the 1.8 million shares sold to the institutions,
isn't it better for the market to have those 1.8 million shares out there
with a cost of $1.90, instead of a zero cost basis? It's 1.8 million
shares that now has a higher cost basis.
Secondly, let's look at the 3 million
newly issued shares. If you have been around microcap fund managers and
know how they think, the deal actually makes sense. I am going to take
the liberty of guessing the funds involved in this financing have been
buying the stock in the open market. They are already familiar with the
company, and have been having difficulty accumulating the stock without
moving the market up signficantly. Here's what they want- a position that
is meaningful to their fund.
What do they do after they have accumulated
their position? Go out and tell all their buddies. It will be part of their
mission to make sure this stock trades more efficiently in the future.
And, if they have been buying in the open market, the average cost is bound
to be well above $1.90.
Also- here's something else the individual
investor probably doesn't think about. If a fund engages in a non-public
transaction to purchase shares, they can enter into a non-disclosure agreement
with the company, and obtain non public information without violating Reg
D for the purpose of evaluating the investment.
The funds are writing the check.
They have looked at the company, and they can get information we can't.
They believe they will make a lot of money from $1.90- the total
investment is over $9 million. Do you think they plan to turn around
and hit the market with that size tomorrow?
There was only one surprising item
disclosed in the press release on the funding. CPNE stated the pricing
was based on a 10% discount to the average closing bid price of the stock
over the past 20 trading days. It comes out at $1.90- seems like
it should be higher. That would make the 20 day average $2.09- time
flies when you're having fun.
If this stock is going to trade to
efficient levels relative to their earnings, institutions have to get involved.
Several have now been given a nice incentive to spread the word. I don't
believe CPNE needed the money- I believe they took it in return
for institutional participation.
I'm going to keep the technical side
of this very simple. The stock bounced off the 38.2% retracement easily
today, but is still lurking in that neighborhood. I would call it a strong
buy at that level.
If the stock sells off further, it
is a pound the table screaming buy at $2.42 as long as that level
holds. $2.20 would be your SSL. Next Tuesday, the 22nd- CPNE
will announce Q4 guidance- we'll see what we have then.
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eFoodSafety
(OTC BB: EFSF) Gets Positive Ink |
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EFSF is bound to get a bump
today as a very comprehensive research report out of a Florida Based analyst
for hire firm delivered a truly comprehensive look at the company and its
potential.
This is far more detailed information
than you will generally get from the OTC Journal- I write a relatively
simple newsletter with a common sense approach to microcap stocks. I try
to keep it simple.
However, it is very helpful to have
resources which provide specific forecasts related to the future. In the
case of EFSF, they have so many product introductions in the pipeline,
it is difficult to keep them all straight and to understand their potential.
The author concludes EFSF
will generate $.07 per share in earnings in Fiscal '08, which begins
on May 1 of '07. From there, he derives a 12 month price target of $2.11
based on some valuation assumptions and some dilution factors.
His estimate for revenues in Fiscal
'08 (starts May 1 of '07): $25,648,121.
If you are a shareholder, or thinking
of becoming a shareholder, I strongly recommend you read this report. It
will take you a little time to slug through all 41 pages, but your money
is at stake. Click
Here to go directly to the report.
Page 33 has the financial projections,
and Page 35 breaks down his assumptions by product. Those are the important.
It will be interesting to go back and review the accuracy of the assumptions
sometime in the Fall when there is some history in the rear view mirror.
The chart is compelling since first
introducing the company to the OTC Journal readership. As you can
see, there have been two surges followed by two pullbacks. In both cases,
the highs got higher and the lows got higher. I would like to see this
pattern continue.
Based on this morning's pre open
chart, $.33 is now a reasonable entry level, and $.307 is
ideal. However, if the market responds favorably to today's news, the stock
probably won't give you an opening at those levels.
Pinpoint projections with no revenue
history are tough, but it gives us some expectation guidelines. They rarely
turn out accurate, but can surprise in either direction. A lot of analysts
picked the Colts as an early season favorite to win the Superbowl, and
look how that turned out.
Again, Click
Here to go directly to the Research Report. Here's
the URL in case you would prefer to copy and paste it into your browser:
http://wallstreetresources.net/pdf/fc/EFSF.pdf.
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