Yesterday’s poor action post earnings release in CPNE has cast the die for a correction in this stock in my view. Despite being one hell of a value proposition based on sales and earnings, yesterday’s negative trading in the stock on earnings release day has set the stage for a major correction.
If you bought this stock a couple weeks ago when it collapsed into the $1 range, in my view you will have another shot to do it all over again.
If you want the most succinct version of the negative side of the story in the case of CPNE, here are the comments of one reader:
“I think your Part II is right, especially about how the market may be signaling a corporate problem. These numbers are great, but only in the sense that the return to early chain-letter and pyramid investors are great. Have you visited their sites? Tried to escape from them? Priced their specials against Amazon? Considered that the retail site competes with the stores created by customers of its wholesale site, at the same price?
The business about the intercompany revenues is upsetting because it’s very clear that you can’t count the money you spend on your vertically integrated cost centers. If these subs were third parties, the expense would count, but not the revenue; since they own their “vendor,” they can count neither, but the reduction in expense generates a return on the investment in the subs.
Any company can claim that it COULD outsource something and so what it spends on that function ought to be counted as revenue. But that’s not what’s done.
And CPNE has not just counted the intercompany revenue, it has made it part of a headline, burying the real thing so deeply in the PR that you missed it on the first read. That sort of overreaching is never an accident – and it is most often a powerful indication of the character of the people behind it. I sold my shares this morning, not because I was waiting for the event, but because the PR, with its inflated numbers and effusive self-congratulation, turned my stomach.
This stock may well go higher as bigger fools buy in, but these guys treat their shareholders as customers of their stock, not as partners in their business. And that stinks.”
This was contributed by one reader in the comment section of the BLOG I posted just as the numbers came out on Monday morning. I agree with some of his comments- particularly those related to the presentation in the press release. I wanted everyone to see the negative side of the story.
The problem here is quite simple: There are more sellers than buyers. Some early investors are probably trying to take money off the table in a market that doesn’t have enough volume to support their appetite for liquidity.
As such, it is my personal view that this stock is now going to go back to $1. My advice- if you are not prepared to hold this stock to much lower levels, sell it now.
I can’t be sure the stock will trade down there. It certainly offers a compelling value at these levels. However, technically it looks like odds are it is headed there.
Here’s today’s chart at about 11:00AM Pacific:
As you can see, the stock has broken below my blue support line, and therefore I personally believe a trip back to $1 is in the cards. If and when it gets there, it will be one hell of a buy.
I don’t know for sure it is going there. I just feel if you are going to hold this stock thanks to the outstanding fundamentals, you need to be prepared psychologically for the possibility of it happening.
Comments and questions are welcome.
I am in for the ride. The company’s financials are just way to solid to sell. Let the dumb people at Efund sell their stock. At lease we know they will not be able to effect the stock once they don’t own any.
Editor: Good for you. If the company keeps generating these kinds of numbers, it is just a question of time until they are replaced with new shareholders.
Dear editor,
But what about the fundamentals. Some signals are positive, for instance they pay of the dept, more subscribers. What is exactly wrong? Thanks for responding Remco Lunding
Editor: I believe I covered that in my last newsletter entitled “What’s Wrong With Commerce Planet, Past II”- also read the BLOG you are posting to. You can easily find it on the site.
It’s not a melt down, it’s two sellers, i.e. Duchess and Efunds. If they weren’t selling the stock is north of 2, simple as that.
Editor: I believe you are correct. If the stock would have opened higher on Monday morning, the stock would probably be over $2 today as people would have bought instead of selling.
I believe the earnings are really 3 cents a share if you take income taxes into account.
Also, I do not understand the 6 million warrants that were issued during the prior year at 4 cents a share. That will also cause the stock price to fall.
The earnings appear great but based on what the person said above, how strong are they into the future.
Editor: Certainly when they start paying taxes the earnings will go down. That’s is an interesting point. However, I would point out that fully taxed at $.03- it’s $.12 in annual earnings- a 25 mulitple as with their peer group then puts the stock at about $2.80- a double from today’s levels. I should also point out their profits have gone up each of the last three quarters. I will take the liberty of assuming that trend will continue until proven otherwise.
So, if you’re going to promote such a negative view of the company’s business model and character, how does that square with what you’ve said prior to this? I seriously doubt that the stock has dropped due to anything that reader had to say. The tech analysis is helpful, but disparaging the company’s character is a little over the top.
Editor: It’s not a question of what I am “promoting”. I simply give you the facts, and then provide my opinion of what it could mean to share price down the road. I also believe it is important to show both sides of the story- The gentleman’s comment was the most succinct and well presented negative side of the story. That’s another reason for the BLOG- it give people a chance to share observations on both sides. I’m simply trying to get everyone the entire story.
Truly a peculiar development of this stock. And disappointing! I guess we are all wondering what is going on and where we are going from here. Someone stated the obvious – there are more sellers than buyers right now. I can guess at one of two reasons for this; It may be as simple as one of the larger owners decided that there money makes better use elsewhere or a change of investment strategy or similar. They waited for the number to come out thinking they could sell out on a higher price (since the numbers ARE good). Possibly they miscalculated the buy-side of the stock and simply scared everyone off. Who could blame an investor that waits on the side line at this point? Once they got the ball rolling, more people wanted to get out and the rest waits for it to settle. If this is the case the facts will eventually bring the stock back to more reasonable levels.
The other guess would be that they know something we don’t! I have seen it before in a company where the entire sales force resigned. The management knew. The board knew. Someone decided to get out and started selling. Rest of the world found out a few months later. In another case there was a huge law suite from one dissatisfied customer that started the sell off. What I’m getting at is that there may be a perfectly valid reason for the current valuation – but we don’t not know it yet. Remember that the (fantastic) numbers reflect the history and market price expectations on the future. If this is the case we will travel further south….
Well, perhaps that was stating the obvious, but I’m very upset about this stock right now and I couldn’t help myself!
Cheers!
Editor: I am in a bit of a tizzy as well. The biggest disappointment of 2006 was Monday. We did everything perfectly, and the stock price simply sabotaged the plan. I believe your former point is the problem- simply a couple of large sellers over estimating their ability to get liquidity. I would be willing to bet a very substantial amount of money it was the idiot at eFund- the guys at Dutchess are way too clever at trading to be stupid enough to gap the stock down. That means someone put in a market order to sell more than there were buyers for. Just plain stupid. Also, I felt the language in the press release was a stretch- very poorly worded. Just a number of factors contributed to the sell off. Of course, once it started down, people sold because it was going down. On the plus side, the stock is bouncing now- smart money swooped in when the stock was oversold. Looks promising for a rebound now.
How can count spending as revenue? I don’t think so. This comment is totally in left field. I believe the company is patting themselves on the back because they are rushing to get qualified for the nasdaq listing, besides, they have done a bang up job. Show me a penny stock that has a pps of less than .50 (which was our pps in july) that has earnings and growth 100%+ quarter over quarter this year.
This is a smallcap, which has seen an incredible run of almost 10x in a few months only. Many people probably got in at between .5 or .8 (i did) and some may have accumulated since then (i did) and so it makes sense to take some profit. This will invariably lower the stock price momentarily given the float. I am hanging on as the company keeps on expanding and adding new revenue streams and the real numbers, even if you take into account the goofs in the press release, are quite solid.
I wish the company were more careful when it releases information to make sure that investors can trust it. Again, given the smallcap nature of this, a small lapse in trust can affect the stock price greatly, as we see now. This is not an issue to be minimized.
When can we expect an update from the company as to how Q4 is doing?
Editor: Very good observations. If you look at the big picture of where the stock has come from this year, it’s still been a great year. When companies come out of nowhere like this, sometimes it takes a while for the market to efficiently reflect the value of their achievements. The only way it happens overnight is in a buy out situation. I plan to encourage them to put out a mid quarter update before Thanksgiving. There are no assurances this will happen.
Here is an email that I sent to our President last night…
Dear Michael
As you noticed, Commerce Planets stock has taken a beating this week after the earnings announcement. Many shareholders were dissatisfied with the wording of the release.
My point of this email is to make a few suggestions on supporting/ stabilizing our share price. Between Duchess and Efund, they currently own around 54 percent of outstanding shares. They are selling shares on a monthly basis which creates tremendous pressure. If you can setup an arrangement to buy back their shares on a monthly basis from both companies and return them to CPNE’s treasury, that would make a big difference.
Also, as you stated in the press release, CPNE is substantially under valued. A stock buyback of at least 1 million shares or more will help. It would also cut down the stock dilution from issuing shares to yourself & colleagues.
Regards
Skip
One More Point to Remember!
Now that Commerce Planet owns the software company that creates new applications, this may become a gold mine.
They can develop as many applications and test various models over the course of a year. Even if they develope 5 new revenue generating models, they are bound to hit a home run on a few.
And any typical business, they will continue to hone their skills, testing different models, refining them and cloning the winners.
Just my opinions
Skip
Editor: Very well thought out. I agree with the content of your email. I don’t know if that’s the best use of their cash, as the stock is going to go where it belongs eventually as long as they keep expanding. I guess you could say the inefficient nature of this stock is heaven sent if you feel you don’t own enough.
I’m going to ride it out a bit more, since I doubled up when the stock price was below .20 I can now afford to wait. But I’m wondering how much of an impact the elections might have had on the market in general. I also have shares of Titan and it’s also annouced a great quarter but the price has also fallen. My feeling is that with the Dems taking control of Congress investors are taking a ‘wait and see’ attitude.
Editor: They are saying the control of Congress could have a negative effect on the Health Care and Drug sectors as the democrats move more aggressively to regulate health care costs. On the other hand, the alternative fuels sector is one that is getting a bid under the new Congress. Personally, I believe the market could trade better under this new Congress. The two keys to a huge 2007 are interest rates and oil prices- with the Democrats having a lot more to say, the conflict in the Middle East could calm sooner, which would be a major help to lower oil prices. I believe 2007 is going to simply be a huge year in the markets.
At the price it is now, do you suggest buying more or waiting for another lower price opportunity ?
Editor: On a value basis the stock is a great buy right here. No question. However, the two big sell downs in the stock suggest opportunities come along that are irresistable. Therefore, I suggest accumulating it at these levels, but leave a little powder dry in the event of a big, short term drop. If the pattern repeats itself, the low on the next drop will be higher than the last two. Perhaps it will find its way to $1.80 or so, and then pullback abruptly to $1.30. Who knows? Time will tell.