To OTC Journal Members:
 

Envoy Communications (NASDAQ: ECGI)- Announces International Expansion After the Close Friday

We have been meaning to publish an edition on Envoy Communications for the last two weeks. Our April 20th edition on this company sparked a great deal of mail concerning our earnings projections for the current fiscal year. If you wish to review the April 20th edition, simply click here.

After several unsuccessful attempts to reach Geoff Genovese (President) and Joe Leder (CFO) we finally interviewed them on Thursday. 
After the conversation we are even more convinced Envoy Communications is ridiculously undervalued based on earnings and growth. On April 20th when we published our edition the stock was $2.35. Today it closed at $2.83. From current levels we believe the stock could double and still be undervalued.

In our April 20th edition we computed Envoy would deliver $.36 in cash flow positive earnings this fiscal year, which ends in September. We define cash flow positive earnings to be earnings before non-cash expenses, specifically depreciation and amortization. Another words, the amount of real cash the company earns from its operations.

We computed the number incorrectly. We learned from Joe Leder, the CFO of Envoy, they were on track to earn $16 million EBITDA this year as projected by analysts who follow the stock.

$16 million in profits translates to $.27  ($.162 US) per share in real cash earnings according to the CFO of the company. Therefore, our previous forecast was incorrect and we wish to thank several of our members for pointing out this mistake. During the remainder of this year there will be no further dilution of the stock from either bonuses or stock options unless Envoy trades above $8 CDN (About $4.80 on NASDAQ).

Today the average NASDAQ stock is trading at 50 times earnings. If Envoy achieved the average price based on cash flow earnings, the stock would be at $13.50 CDN, or $8.10 on the NASDAQ, substantially higher than today's closing price of $2.83. This is just slightly less than a triple from current levels.

Sales will be up 53% this year, and earnings will be up 60%. The non cash depreciation and amortization expenses will disappear after the current quarter, allowing the company's earnings per share to accurately reflect their business for the first time.

More importantly, despite the downturn in the advertising side of their business, their Watt International subsidiary, which provides retail design and branding services, is well ahead of expectations as evidenced by yesterday's news release.
 

Envoy Announces New International Contract Win For Watt Group

Watt Group is the Envoy subsidiary which performs retail design and branding services for many major International companies, including Wal-Mart, Microsoft, Home Depot, and General Electric.

Recently this division has been on a tear in the new business win arena. Watt Group is more than picking up the slack for the slowing advertising market.

Friday's announcement concerned a new contract win to design a retail complex for the prestigious Atlantis Paradise Island resort in Nassau, Bahamas. 

This is their first project in the Caribbean. We learned from our interview with Envoy's president the Watt Group currently has retail design projects ongoing in San Paulo, Brazil; Santiago, Chile; and Montreal, Canada.
 

Conclusion

Envoy has just begun to rise with the tide of the NASDAQ. With $.27 per share in real earnings this fiscal year combined with 60% growth rate this stock's current price is ridiculous.

At twice the price we still only at 30 times this year's cash earnings. This is cheap. Continue to accumulate this stock while it's still undervalued.

One word of caution- We had a spectacular week with Energy Power. Companies we cover are still risky, with Envoy being at the lowest end of the risk scale for our theme. When choosing to invest please risk a suitable amount of money for your financial circumstances even though the OTC Journal ideas may seem more attractive coming off the huge win with Energy Power.

Here is the complete Envoy news release for your review:
 

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