In my view, Commerce Planet put out its most telling news release since Q3 numbers came out this AM before the open.
The stock continues to trade extremely poorly relative to the numbers, and investors are scratching their heads and wondering why.
I, on the other hand, have stopped worrying about why. I’m pretty sure I know why- it’s because the early financiers are dumping their shares, and they have a lot of stock that is all eligible to be free trading. It could be in the range of 8 million shares, but I’m sure a lot of that has been sold already.
So, assuming this is the explanation for the poor performance of the stock, what’s the next thing to worry about?
The next thing would be corporate performance- aka sales and earnings growth. If they can keep up the blistering pace they set in 2006, this stock simply has to go higher eventually.
We are almost through Q4, and we haven’t known if they were keeping pace- until this morning. The company put out a news release stating it had enrolled an all time record of 3466 new memberships on one day- and that membership pace was at a new all time high. Of the $7.6 million in revenues the company generated in Q3, about $6 million was membership revenues.
Therefore, I believe it is now safe to assume that Q4 ’06 will be another record quarter for sales and earnings, – perhaps as high as in the $.09 to $.10 range EPS. One problem- we won’t see audited numbers out until at least the end of February- perhaps out to the end of March. At $.10 per share, you would have annual earnings of $.40 per share- you could make an argument for an $8 stock as absurd as it seems.
This chart is getting interesting. The stock is forming what technicians call an “ascending triangle”. It’s ascending because it has a slightly upwards bias, vs descending which would have a slightly downward bias.
As the highs get lower and the lows get higher, volume is drying up, and the chart is narrowing to a point. The longer it extends and the lower the volume, the more violent the move will be once it breaks out- or down.
In any case, as this stock continues to extend out in this tight range, it is probably setting up for a major move. The numbers would suggest to the upside, but I can’t say for sure. There is no doubt investors are losing faith and interest as the stock continues to fail to reflect its value based on corporate performance.
All this suggests the company simply needs to get better at getting its story out to the investment community. They need to reach way beyond the OTC Journal and reach out to money managers who have the capability to cleaning up the slop.
Here’s a link to today’s news release:
http://biz.yahoo.com/prnews/061212/latu062.html?.v=76
Comments and questions are welcome.
“As more early investors are selling shares.” How about Market Pulse being paid by the company to hawk it? How many more shares will that put in the market? It seems a never ending cycle of diluting the share holders value. It has been a while since we talked . Jim Marks
Editor: Jim- you might want to read the disclaimers. Market Pulse received zero shares for covering the company. It was a cash payment only. Also- the company has not paid anyone in shares in years. The shares we received will be three years ago come February. I would guess the last time they issued any shares of that nature was early 2005. No- it is the 8 million shares owned by the principals of eFund and Dutchess that are killing this stock. It is bad, but it is finite. The number of shares I&O will go down from here forward, not up.
I notice that OTC Journal has a target price of $2.00 on Commerce Planet. On what basis have you chosen $2.00 as a target price? Also, do you have a recommended Stop Loss for this particular stock?
Editor: The SSL you see is the Suggested Stop Loss. I have arbitrarily chosen $1 as the SSL- you might ask why? The answer- I don’t really have a good one. It’s just an arbitrary number I chose based on some of the down drafts the stock has had in the past. Thing is- all those downdrafts became good buying opportunities. This one is really all about whether the company can continue its momentum from 2006. If it does, at some point this stock has simply got to trade higher. The company needs to get out there and tell its story on an institutional level. So far, they have not done so. The $2 target was also an arbitrary number based on what technicians call a “measured move”. Clearly, it is not going to make $2 this year, but if they keep delivering the numbers, eventually it is going there. On the value side: last quarter the company delivered $.07 per share in earnings- that’s an annual run rate of $.28 per share- at 15 times earnings it’s a $4.20 stock. Is it going there? I don’t know, but I hope so.
I’m wondering who Commerce Planet’s competitors are. What companies should be used in comparing Commerce Planet’s earnings and fundamentals in determining an appropriate target price for the stock?
Editor: That’s a very good question and will require a little research on my part. Yahoo! suggests they are in the “catalog and mail order” group, but I don’t think that’s accurate. I will do a little research on the issue and use the information in my year end wrap on the company that will be published next week sometime. As a function of earnings and the cash they are building, by any metric you can find this company is undervalued. I think there weakness is the “value proposition”. They have become a little like a multi level marketing company- people sign up to become “distributors”, and really become consumers. A year ago the company didn’t even have anything to consume- they were just a marketing company selling a service with questionable value. Any way you cut it, if there momentum is continuing, they are generating $1 million a month in profits- that’s staggering. If they keep it up, the market will find out about it someday.
Well, I have actually been happy with just “floating upwards”. I took a little off the table @ 1.30s since my buys were .97. Factoring my sells, my cost basis is .80. I still believe in $2 minimum. One key negative indicator is my travel. Whenever I am away from “the screens”, this thing drops. I will be gone 2 out of the next 3 weeks so there may be some good buying opportunities.
Best of luck to everyone and happy holidays.
Editor: I haven’t published my year end edition on Planet yet, but we I do I am going to share the following observation. I believe this stock could be vulnerable to a sell off in January. It has been “drifting up” of late. It seems like the sellers are gone. But consider the following. The problem with this stock has been the early financiers with about 9 million shares of cheap stock. They are sellers with huge profits. If they sell now, they have to pay the taxes on their gains in April. If they wait a couple of weeks, they have to pay the taxes in April 2008. There could be pent up demand to sell. If there are no buyers in the stock when they want out, look for another buying opportunity swoon. I don’t know what is going to happen- just a possibility as we turn the corner into next year.
This company is on the right track .I believe that they are just now beginning to get the correct story out . I also agree the 8 milion or so financiers shares that is dragging this stock down is a big part of the solution . Great management team and revenues again this quarter . I believe after the first of the year we will see a major move and a well deserved one indeed…thx Scott Harkness
Editor: I believe there is a chance it could be vulnerable to selling pressure in January, which I will spell out in my year end edition. Fundamentally, this stock is worth far more than where it is trading. Q4 should be strong again if you believe the company’s hints.
With Efunds being an affiliate group are they limited in the amount of stock they can sell in any 90 day period of time. It is what it is but damn if it wans’t for Duchess and efund this stock is well over two. Even so they have a finite supply and some heavy volume over an extended period of time, plus the 2MM buy back should clean up the situation in short order. This company seems like a logical company to be sold, especially since the earlier financiers got them by the short hairs for the time being. Do you think this company as it is currently constructed is a saleable entity? If so, what kind of premium could one expect. Thanks
Editor: They are supposed to be limited to 1% of the monthly volume, but once you get past the two year holding time it is not vigorously unforced under rule 144k. If this company were to be sold, I would expect it to be a high premium over the current level. If the business is continuing to function as it did in Q3, they are now making $1 million cash per month- $12 million per year. You would assume it would sell for at least 10 times a year’s profits- $120 million- that would be a little less than double where it’s trading now.
This is a very good subject to bring up. Two or three questions ago there was someone asking about who are the competitors of CommercePlanet. With this in mind are these the companies that would buy Commerce Planet. Who or what type of company would buy Commerce Planet and would it be one of their competitors. Surely its not Yahoo or Amazon as it says in some searches I have done. I appreciate your thoughts. Also one last thought, if a company say bought CPNE at 120 million what could possibly happen to the stock?
Editor: There are about 44 million shares I&O. Therefore, at 120 million buy out you’d be looking at about $2.72 per share. It would likely be a private equity group- private equity money has been very active buying out undervalued public company and taking them private. If a public company were to buy them out, it would more likely to be some sort of marketing company.
With management doing a $2,000,000.00 stock buyback, we may be Ok during the Jan potential swings. Efund, BTF LLP or Duchess will probably sell responsibly to protect their investment.
CPNE’s 2,000,000.00 stock buyback allows CPNE to purchase around 1.38 million shares. Since management believes their stock is undervalued, it is wiser to buy now before the financials are released. They would be a fool to wait for higher prices after the financials.
Management may have a good til cancel buy order in at a lower price to provide a floor on the stock. So when a Fund or others decide to dump a load, it may get absorbed.
Just my thoughts
Skip
Editor: The next couple of weeks should prove interesting.
fellow investors theory/opinion from another board:
“With management doing a 2,000,000 stock buyback, we may be ok during the Jan potential swings.
2,000,000.00 allows CPNE to purchase around 1.38 million shares.
Management may have a good til cancel buy order in at a lower price to provide a floor on the stock. So when a Fund decides to dump a load, it may get absorbed. ”
I knda like this… seems probable.
what do you think?
thx again for all your info this year.
all the best for 07
crockett
Editor: Crockett- I believe the next two weeks are going to be interesting. If the stock remains stable, I believe we are close to seeing a whole new wave of buyers surface. If the bids are there, the company will have a hard time buying its stock back since they cannot be the lone high bid according the SEC regs. The next two weeks will be interesting. I can’t call it one way or the other. I can only be reactive.
I am a shareholder of Commerce Planet and have been following the company very closely over the past number of weeks. I happened to discover a website called alexa.com that tracks web traffic for individual websites and noticed a significant spike at onlinesupplier.com which I believe is operated by Commerce Planet (please confirm). Assuming the web traffic statistics are correct, do we have an idea as to how important this particular website is to the company in terms of revenues and income?
Editor: I am not familiar with that particular web site. However, I can tell you, as gleaned from public disclosure, the next two quarters should be great. Trend continuing.
Does your ascending triangle pattern theory still hold given the recent stock breakdown? Have we reached the inflection point?
Editor: Give me a day or two to look at the chart. I need the market to open to get one. The next two weeks should be very interesting.
What is your take on the news that CPNE has retained a highpowered M&A firm?
btw, just for your info, and you can delete this, pls, but you are misusing the word “there” (place) when you should be using “their”, meaning possession. I see this and other such English mis-uses frequently on the boards.
Sincerely,
Paul
” I think there (THEIR) weakness is the “value proposition”. They have become a little like a multi level marketing company- people sign up to become “distributors”, and really become consumers. A year ago the company didn’t even have anything to consume- they were just a marketing company selling a service with questionable value. Any way you cut it, if there (THEIR) momentum is continuing, they are generating $1 million a month in profits- that’s staggering. If they keep it up, the market will find out about it someday.
Editor: It would be nice if they found a buyer a got a great valuation. On the other hand, perhaps they will use all this excess cash flow to buy other companies. All in all, it seems like a good direction to look, but I doubt if the market will care until something concrete comes out of it.