CGYV popped its big news pre open today, and so far it’s a bit of a non event on the trading front in terms of price movement. However, the lack of price movement tells you a lot.
CGYV has delivered a fantastic move over the past two trading days. It doubled off Tuesday morning’s low print of $.90, and traded as much volume in the past two days as the last three weeks combined. Someone was buying the stock, and buying a lot of it.
Today, the news of their monster new contract came out pre open. Great stuff. Little doubt the last two day run up was about this news as well as the high volume stop and reverse technical move.
Here’s the chart about 40 minutes into the trading day:
As you can see, the stock has given a little ground. Far more important that the price movement is the volume. So far today, it has only traded 31,000 shares- as compared to 300,000 and 500,000 over the past two days.
Clearly, this was a “buy the mystery” rally. What’s missing is a “sell the history” sell off. The buyers of the last two days so far don’t appear to be ready to pull the trigger on their profits yet.
I suspect those buyers are looking for much higher levels, which is a great technical sign. Nevertheless, since the stock is not trading up on today’s news, one needs to look for a pullback to accumulate.
Your 38.2% retracement would take the stock back to about $1.52. If it gets there, I strongly recommend jumping in for at least a partial position. $1.28 would be ideal, but that might be a bit of a stretch considering the damage that’s already been done.
Today’s volume tells me the guys with all the profits have no interest in selling. That says a lot.
Comments and questions are welcome.
Great blogs and thanks for the interpretation of the information.
As I write, we’ve traded 106,917 shares sitting at 1.94 with a high of 2.05. The chart suggests buyers on each intraday dip now and going back two days (intraday charts give the best picture). I think we can safely say we are uptrending nicely.
What is the current production capacity? Turn around time on orders? Manufacturing facility outlook? Thanks!
Editor: In their current facilities, the company can do more than $40 million in revs, and less than $50 million in revs. Time for turnaround from orders is 3 to 9 months. Today’s orders are 2009 business. Manufacturing facility will require an upgrade for further expansion beyond 2009.
From ANONYMOUS “it is still $2.00 under your ssl so You must be very disappointed today.”
Editor: Thanks for pointing that out. So, if you took your loss and sold it at $2 as I suggested, you were in position to buy it back yesterday at about $1.20 when I published a strong buy recommendation. I don’t know where it will be by the time you read this comment, but if it’s a lot higher than Wednesday’s closing price of $1.90, it might be a profit taking opportunity. Of course, in order to do exactly what I said to do, you would have to be literate, be able to read, and take action. I don’t know if that describes you or not, but thank you for pointing out how good my SSL turned out to be, and how good my “rebuy” turned out to be so far.
Comment by Anonymous — 11/5/2008 @ 10:51 am
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What an idiot that kid. Anyway, great job on handling the riff raff orphans. Your SSL at both 3 and 2 saved those who heeded the advice. Had I done so my self, I would not have to have doubled down to get myself back in the green this morning. What is the plan, if any, for orders inside the United States (not that it is necessary for the success of the company…just curious)?
Editor: I don’t believe they will make any effort to compete for business in the US. There is all they need in China and other areas of the Far East. Their market is manufacturers, and all the manufacturers have moved from the US to other regions of the world, so demand it not as great in the US.
CGYV is looking good. Can you comment on how to value the stock? Assuming the growth trend continues. Thanks for the newsletter, appreciate your coverage.
Editor: Here’s kind of an old fashioned look at a potential valuation. There’s an old rule of thumb which doesn’t work in today’s market- but could in the future. A stock should trade at a PE of about half its growth rate. As an example, if a company has a 50% growth rate, it should trade at a 25 multiple. In the case of CGYV, I believe the company could generate about $4 million in profits next year. That would equate to $.13 per share in earnings. The growth rate would be about 80%- so 40 times .13 is $5.20 per share next year. I also believe with their sector and growth rate, any valuation below $100 million for this company is absolutely absurd. That would provide us with a shorter target of $3. There’s lots of other ways to look at it- but there’s two to consider.
Thanks for the reply. You wrote: “A stock should trade at a PE of about half its growth rate”. Is that conservative? Peter Lynch once wrote: “The p/e ratio of any company that’s fairly priced will equal its growth rate”.
Editor: Stocks will often trade at a PE equal to their growth rate. If you buy them at a PE equal to half their growth rate, when they get up to equal in a richer market environment, you will make a lot of money.
What an idiot that kid Your SSL at both 3 and 2 saved those who heeded the advice. Still 50 cents below ssl those are the facts
Editor: What amazes me is that anyone would even bother to point out how wrong I have been on some of these ideas. I could have been writing about Lehman or Bear Stearns, and those would both be zeros. Anyone who has been long any common stock this year has lost money- with the exception of WalMart. This is a once in a lifetime environment, and there will be a once in a lifetime equal but opposite reaction on the other side somewhere down the road. You don’t want to miss it.
Don,
I applaud your quote of Peter Lynch. I also would like to point out that regardless of what parameters you use to decide on value, I think it is clear that this company and stock is way undervalued. My sense is it should be sitting at or near 4 dollars if there was no hedge fund liquidation and that’s without the latest 11.6MM contract.
Is there a plan to obtain NASD listing and NOT AMEX? I know, I know…it’s way too early to be asking but I can’t help myself. Thanks!
Editor: The company had originally been thinking NASDAQ by now, but that’s not going to happen at this absurd price. I think they would go AMEX in the short term, with the longer term goal to get to NASDAQ once it’s over $4.