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Commerce Planet
(OTC BB: CPNE): Rumors and Truth |
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One of the keys to being a successful
stock market investor is your ability to learn from the past. There are
patterns that repeat themselves, and the quicker you can identify those
patterns and learn to profit from them, the more you will enjoy investing
in the stock market.
So, now we are faced with a crises
of confidence on Commerce Planet, the darling of OTC Journal
subscribers. My highly covered #1 pick of 2006 is giving investors are
bit of a heart attack in February of 2007.
The stock is behaving as if there
is a problem with CPNE. The company is behaving as if it is full
steam ahead. The trailing numbers suggest the stock should be considerably
higher, and yet it has taken an abrupt drubbing this week.
Long term followers of this company
should now take a step back and consider the patterns that could repeat
themselves. Consider this chart- This chart goes back to when CPNE
released Q3 '06 numbers in October. Look what happened to the stock. Investors
pounded it down from $1.80 to a blow off level of just under $1
in a few trading days. Why?- I don't know. The company was immensely profitable,
and the stock deserved to go up instead of getting its brains beat out.
Fast forward to mid February of '07.
A few days ago the company published "guidance" for the full year, meaning
they will report a profit of $.18 EPS for 2006- a full $.07 in Q4.
Once again, the stock gets pounded
in an inexplicable manner. Over the past week it has dropped from $3.50
to just under $2.20- another cascade sell off.
So, now let's look at what happened
to investors who had the courage to buy CPNE when in got clobbered
in early October post Q3 earnings release:
Note: if you had the courage to step
in when the stock got clobbered in October at the $1 level, you
were rewarded with a 250% gain at the top in a period of four months.
Here's another abrupt sell down just
after the market learned of the high profit levels in this company. As
Yogi Berra would say, it's Deja Vu all over again. So will the pattern
repeat itself?
The market has made us look silly
every time we doubted this company. As far as I am concerned, that pattern
will continue to repeat itself until proven otherwise. The company has
given me no reason to believe their growth is getting derailed. In fact,
based on rhetoric coming out of management in their press releases, I believe
the company will deliver strong growth in sales and earnings in Q1 of '07-
it is also seasonally their strongest period of the year.
There are rumors floating around
about 144 filings. For those of you who don't understand what that means,
here's the scoop. When a publicly traded company issues shares directly
out of treasury to anyone- it could be investors to raise capital, employees,
consultants, financiers, etc, those shares are not eligible to be sold
into the market. They are described as "Restricted".
There are a number of ways those
shares can be eligible to be sold into the public market. Unless newly
issued shares are included in a registration statement, they are eligible
to become free trading after a period of one year under SEC Rule 144.
One of the problems that has plagued
this particular stock is the dearth of supply coming from early financiers
and participants. The company struggled in 2005, and did what it had to
do to raise capital. The payment for that capital is probably still coming
back to haunt this market in the form of supply.
Here are the facts as they stand
today. Since September of 2006, shareholders have filed to sell 2.5 million
shares under Rule 144. There could have been very recent 144 filings to
sell the stock which haven't hit the SEC yet. New 144 filings could show
up any day, and I am now watching. Typically, the shareholder knows he
has the legal right to sell before it shows in the SEC filings, so you
could be seeing some 144 sellers right now. The filings will show up sooner
or later.
In combing through the filings I
also learned that JLT Asset Management- a Del Mar California based
hedge fund run by Jeffrey Feinberg, has accumulated 3,037,500
shares
of CPNE. I don't know him, but I know others that do know him, and
I am informed he is very sharp and generates great returns for his investors.
So, there's the facts as they exist
today. No rumors. By way of full disclosure I inform subscribers that I
have been a seller of CPNE in small amounts for our corporate account
when the stock traded well over the last six months. Our position was down
to just over 200,000 shares. Today, I have been a buyer of the stock in
a couple different accounts. I was trying to buy early under $2.20, but
couldn't get any fills. So far, I believe I have purchased about 15,000
shares. I will probably buy more if it stays in this range. I also reserve
the right to buy and sell at any time of my choosing following the guidelines
set out in the Mission Statement. You can find it on the home page.
Let's hope its Deja Vu all over again.
I am betting it is. Keep an eye on the BLOG this week for new information
concerning 144 filings. However, once we see them, all they might do is
explain the recent down draft in the stock. By then, it should be in the
rear view mirror.
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