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After a screeching first couple of
weeks in January the microcap market is taking a bit of a breather. Several
OTC
Journal ideas approached target prices this past week, and two made
them- CPNE got to about $1.90 with a target of $2-
PNWIF
got to about $3.90 with a target of $4- EFSF reached
its $.30 target in very short order and I'm reevaluating where I
think that one might be able to go; you should have taken some profits,
and NIHK traded north of $.10 which was the target- so you
should have sold some or all of your position on that one as well.
Probably more important than targets
are the "SSLs", or suggested stop loss levels. I am going
to re-evaluate those SSLs this weekend, and post new ones. It's
time for them to go up. I'm going to look at 61.8% retracement levels,
and set the SSLs about 5% below. You can find the revised numbers
on the left hand menu bar of the home page.
In my view, the drubbing in the NASDAQ
over the last couple of days, sets us up for another major surge to the
upside. The stock market is back, and multiple expansion will be part of
the 2007 story. Keep an eye open for new BLOGS.
The BLOG is your opportunity
to ask questions and offer comments. I will make an effort to answer every
legitimate question. If I don't know the answer, I will contact the management
and get the answer. Alternatively, if you have questions you don't want
publicly displayed, you can always email me directly at editor@otcjournal.com.
To use the BLOG, simply go
to the home page at www.otcjournal.com
- the BLOG scrolls down from the upper right hand corner. The most
current journal entries appear on the right hand side of you screen. Check
back frequently for updates particularly when stocks are moving to overbought
or oversold levels in volatile markets.
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Somebody Loves
PhotoChannel (OTC BB: PNWIF) |
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PhotoChannel, which had been
quietly hanging around in the $3 to $3.25 range, decided to perk up, blast
up the charts, and make a new six year high this past week.
The last news which had the stock
moving was the pre Holiday revelation Kmart had begun using their
services. I got everyone the inside scoop on that event before the market
knew about it, and got those who acted got into the idea at the $2.75
to
$3
level.
There was no news from the company
to explain this week's move. There is an explanation, and it came to me
indirectly through a fund manager.
To understand what happened, you
might want to read the following. There is a web site found at www.valueinvestors.com.
It was reviewed by Forbes as a top web site. Membership is free,
but only 250 members are allowed to join, and you have to be a fund manager
to qualify. You also have to submit at least two ideas annually to the
members forum to maintain your membership. Click
Here if you would like to read the Forbes review of the site,
which is run by Columbia Business School Professor/ hedge fund manager
Joel
Greenblatt.
I have a copy of the report, but
I cannot share it with you because I don't have permission from the author.
The author is anonymous, so I can't get permission. It was posted at value
investors for members only, and I have a PDF version. I can share what
it says.
The author of this anonymous report
believes PNWIF actually has a shot at trading to $20 per share,
an aggressive forecast. He (or she) computes the company could grow to
$124 million in annual revs and $2 EPS with its current customer base.
Furthermore, he believes (at $3) that the stock is trading at 15-20 times
his 2007 earnings estimates, and only 8 times his 2008 estimate. He does
not specify if he is referring to fiscal 2007 and 2008, or calendar of
same.
Clearly, this issuance of this report
put a significant charge in the stock. I have no idea how this individual
arrived at his financial projections. After all, it has been many months
since this company published a financial statement. Their year ends at
the end of September, and we still haven't seen 2006 fiscal audited numbers.
When those numbers finally come out
around the end of January, they will be pretty stale. Investors will be
looking for fiscal Q1 numbers to get their first hints of PNWIF's
financial performance post CVS roll out to 5,000 pharmacies.
In light of this past week's performance,
it's worth reviewing some of the investment highlights. In my view, there
are two very good reasons PNWIF could become a Wall Street darling.
First and foremost is their industry
group. There are one of only two publicly traded pure plays in the digital
photo processing space. The other is Shutterfly (NASDAQ: SFLY).
Wall Street understands the digital photography revolution is here to stay,
and online photo processing will be a big part of it.
Snapfish was bought out several
years ago by Hewlett Packard for $300 million.
Shutterfly
sports a $300 million market cap. PNWIF is down in the $110
million range.
I prefer the PNWIF business
model over SFLY's. Shutterfly offers online photo processing
via mail order. You upload and order your prints, and receive them in the
mail. SFLY must bear the cost of customer acquisition, and have
the photo processing and shipping distribution in place.
PNWIF on the other hand has
none of those expenses. PNWIF only provides the internet interface
on behalf of store chains. The customer uploads and orders prints online,
then goes to their local store and picks up their prints in one hour. PNWIF
collects a couple cents for every print ordered. Instant gratification.
SFLY's top line will be substantially
higher as opposed to PNWIF, but so will their costs. PNWIF
will blow away SFLY on gross profits, and profits as a percentage
of sales. When you compute the potential value of PNWIF, you have
to consider the value of all the CVS, Kmart, WalMart Canada, Costco Canada,
and other store chains customers the company serves. I'm sure it's approaching
8,000 to 10,000 retail outlets. CVS is over 5,000 alone.
Here's my updated thoughts on PNWIF:
I believe the stock is a good buy at $3.23 (38.2% retracement),
and a screaming buy if it ever sees $2.875 (61.8% retracement) again.
Your new SSL is $2.73. If you have been following the OTC Journal
you should now own this stock at or below the high $2's. Will we
ever see $20? I won't go down that road. However, $10 is
a possibility over the next year or two if the online to retail photo finishing
business grows as Wall Street projects, and PNWIF lands more high
profile retail chains.
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