Like most of us, you are probably scratching your head concerning the poor performance of CPNE relative to the earnings the company has generated. Last weekend I asked OTC Journal readers to share their beliefs concering CPNE’s inability to get a decent valuation relative to sales and earnings.
I believe there are two major contributing factors to this stock’s failure to reflect a reasonable valuation. First relates to the original capital structure and the market’s perception. I am constantly answering emails related to supply of stock from early financiers who paid next to nothing for their participation in this stock, and even in the $1.80 range are sitting on massive profits. Dutchess and eFund are two names that come up regularly. eFund is by far the more aggressive of the two with the most upside for the least contribution. However, I believe the “existence” of these blocks of stock are more a “perception” issue than a reality issue. Certainly both groups are sitting on huge wins, and both have no doubt been sellers from time to time. Sometimes it happens with early stage investments. They simply work out. Regardless of what they do with their shares, it has nothing to do with the company’s sales and earnings- they are there, and the stock deserves to be higher. They are no different than early stage VC money in higher profile companies.
The second, and I believe the more oppressive issue, is the company’s refusal to provide dialog and information to investors concerning their ongoing operations. There are no analysts following the company, so we have no formal projections. They used to provide a monthly update on new subscriber levels, but have abandoned that practice. Investors are assuming the worst. They have never published any data on subscriber retention, which the market needs to see if they are ever going to get a decent valuation.
Enough from me. Here are some of the more succinct comments from readers:
Comment 1:
First, many thanks for your perceptive and informative otc newsletter. Among the constant flood of unsollicited market letters one receives yours is without doubt the least pompous the most honest and also the most useful. Again, thank you.
Now with regard to cpne, I noticed your suspicion of conspiracy expressed in your bulletin of the 7/04. Friday’s market action appeared to be either panic selling or crude manipulation, possibly by a syndicate of market makers. I believe they are six of those but it would be interesting to investigate the way the market is set in OB securities, is it independent open outcry, electronic, a combination of both and also by which firms/individuals. I followed the market action closely on Friday and noticed that, certainly towards the close, blocks of 9 – 10000 shares would be systematically sold “at the market” thereby triggering the plunge in the price. Clearly, no genuine holder of this stock would place “at the market orders” save in exceptional circumstances and certainly not when the stock is trading down some 15% from it’s intraday high, furthermore on the heels of excellent news on the cy’s fundamentals.
As to these fundamentals, I believe the market, and certainly me, have difficulty in fully understanding the company’s business plan, it’s core activities and the source of it’s income and growth. The numbers appear to be brilliant, but who are the clients, what makes cpne special, where will the growth come from, who are their competitors and how attractive is the cy as a takeover candidate. Should this be a possibilty it would instantly kill all kinds of conspiracy/manipulation and the stock would trade at some premium to it’s value based on fundamentals.
In summary it looks like cpne’ s management is genuinly concerned about it’s stock price and shareholders. They are evidently making an effort to explain their business and strategy but have so far failed to attract any following on the street. How about getting Chairman Mario on board….
Comment 2:
I have two basic questions that could help satisify the issue of stock price.
As a business model of attracting subscribers and cross selling, we know they have been successful in attracting subscribers. The question then arises what about the retention rate? After we know the retention rate then how about the ratio of cross sell.
As an investor, the question I try to answer is the value of the company. Without the retention rate and cross sell ratio, which in my opinion should be addressed in any corporate report. This in my mind would allow us to project the future value and there by the stock price. Without that information one of the best methods is book value (so keep piling on the cash). If their competition is Amazom.com then we need to know this information if we are to belive the stock price can skyrocket to a PE miltiple of 100.
In my opinion, the stock price may be where it is because we know what the company has done not what its projected success may be in the future.
On the positive note, I cannot believe that a sophisticated investor would invest $9.1M without knowing that information.
Comment 3:
I think the market is still wary of this stock. The reason I believe this is true, and why I am wary, is because they refuse to reveal their re-up numbers. I suspect they are getting good sales and then they don’t get a further sale. This would argue that there is a serious flaw in their business model, or in its execution, that would be revealed if they gave their re-up numbers compared to new customers. Thus, it may be believed that they can’t keep up this growth rate because folks don’t continue to buy their service. There are a finite number of companies out there to use their service once, and then not again. It is as if Starbucks or WalMart refused to reveal their same store sales (stores open more than 13 months). It would be assumed they had something to hide and their stock would be pounded down. That is what I believe is going on. It might not make for a good trading stock any more because of that suspicion—until they reveal what is really going on.
Comment 4:
I believe that CPNE may be a victim of its own success. With record revenues and lots of cash on hand it has attracted a few sharks with lots of money to play this stock both up and down simply because the risk of CPNE going out of business is almost non existent. Quarterly reports are predictible events, you know when they will happen and if you know that the numbers will be strong you have a good idea what most traders will do. And if you have the resources you buy very early and very quietly. When the stock starts to move prior to the event you begin to sell slowly and as it approaches the event you sell more and more of your position. What ever you have left you sell off even if it is at less than you bought it for because you already made your money. The panic starts the downhill slide and soon the market is selling off on fear. These traders ever sell short to increase the downhill slide. Then they wait for the next quarterly event. TTGL is also experiencing ithe same tactics as well as PNWIF seems to be suffering the same fate. This prevents confidence from building within the stock keeping CPNE and TTGL volatile which is exactly where they like it.
There’s a few of the emails and comments I received, and there are some perceptive viewpoints contained within.
Many thanks to contributors.
As usual, comments and questions are welcome.
Are you continuing to hold your stocks at these levels and given the posted observations. Also if you could define what registeration stocks are.
Thanks
Shabber
Editor: I haven’t sold any in a while. There is a weekly update on our position on the web site at CPNE’s section. A registration statement is a document filed with the SEC to allow previously unregistered shares to be sold into the open market. Unregistered means they are owned by shareholders and/or insiders, but not legally sellable in the open market.
One should not overlook the simple and pure fact that this stock, regardless of financial performance, is on the bulletin board. This makes the stock and the company harder to trust through no fault of the company. If they want to participate more in the management of their stock, they will. Having been down this road on occassion, I am waiting for the company to provide guidance. Just when the majority is giving up, as evidenced by the current depressed price relative to standard valuation models, a smart management team will step up and provide what is needed. Remember, they have a noteworthy institution on board to protect and they want (and will most likely get) more big boys sooner rather than later. Buy smart…when others are selling.
Lewis
Editor: One this is certain- guidance is an issue that seems to trouble everyone. My guess is they won’t provide any guidance until they come out of registration. When companies are in registration, they aren’t supposed to give out much information beyond the registration statement. I’m with you on buying when they are cheap and no one wants them. It reduces the risk considerably. I don’t believe the BB is as much of an issue. There is more institutional money than ever that will trade down here, and it hasn’t stopped plenty of other stocks. PNWIF is one example- it is simply a much better structure.
I feel the stock price will not resume an uptrend until selling subsides from existing shareholders taking profits, and other sellers who with a cost basis well over $2 selling into rallies who are motivated to exit. Fundamentally, too little attention is being given to what the company has reported. Sophisticated investors with access to management bought 4.8 million shares at $1.90. 1st qtr revenue rose 47% over the prior quarter. Operating income rose 33% over the prior quarter. Cash rose 64% over the prior quarter. These are pre-announced results. This would be considered good annual performance. Assuming a conservative .30 eps this year, the forward p/e is 6. Yes, the company needs to better inform investors regarding the business. Regardless, the risk/reward of owning this stock at the current price is compelling. Buffett emphasizes focusing on the growth of “look through earnings” i.e. cash generated from operations adjused for normalized capital investment. This company is growing cash earnings (growing intrinsic value) rapidly. The business does not require large recurring capital investment. In the short term, market value may deviate from intrinsic value. Savvy investors accumulate when market value is well below intrinsic value. That is the key to Buffett’s success.
Editor: Yes, it is a great Buffet/Peter Lynch type idea at this level. Many would suggest just hanging with it until the sellers get their heads out of the proverbial hind ends.
I tried to post another web site for internet rankings on the RB board ,but it wouldn,t let me post it . I believe a lot of the CPNE posters over there read your site so I am passing on the info through you .The website is called quantcast.com and it shows a more positive outlook of our recent visitors . On alexa.com half way through Feb. and all of March we appeared almost flatlining but on quantcast it shows a steady Feb. and a spike in march. This site also states we receive 715,000 visits per month and that 30% of those are regulars. That appears to be a better insight for us to go by .As management seems to choose not to tell us about what our main concern is I guess we have to try and find out ourselves. Another comment too add to the above is that I believe that management is acting like a used car salesman ,they only tell you the good points about the product and sweep under the carpet the potential problems of the product . Investors fears are based on the potential problems and until management address those issues we are going nowhere but down. Any honest used car salesmen out there please accept my apology for using a stereotype.
Editor: Thank you for your contribution. One thing we are all in agreement on – the company’s failure to communicate on a regular basis has investors assuming the worst, and hence the stock trades poorly.
How long does the institutional investor you had mentioned earlier who purchased at 1.9 have to hold on to his stocks per regulation and when would we know if he decides to sell his portion. The drift south has been over relatively low volume which to me would indicate that this is profit taking or partial profit consolidation, at the same time low volume despite lower numbers indicates lack of investor confidence who might step in at this stage to buy the stock.
I think the company is surely looking long term at this one. Back in Sept it was 1.25 then Oct 9 up to 1.78 then back to 1.36 the next day. Despite anything these levels are significantly higher than the early 06 numbers. When taken into perspective I think the growth remains substantial and this point should be hammered out. Company guidance should provide longer term projections than shorter term to develop investor confidence. Honestly, I think this online e-commerce industry is not going to go down south anytime soon, in fact competitive bidding may actually increase given retail competition from Asia.
Editor: Once the current registration statement is effective, Feinberg can sell any of his stock any time he wants. I don’t know why he would buy at $1.90 to sell at $1.90- he won’t be a head fund manager very long doing that. You cannot tell when he sells- every now and then large shareholders have to file a form called a 13D, stating the number of shares they own. If you compare to their last 13d filing, you can tell if they have been selling. It takes a lot of research and is the sort of thing only pros do. Most investors concentrate primarily on the fundamentals and the charts.
Is there a parallel between CPNE and TTGL, both spiked at good news then slide down again in a 2 week span. You are predicting an upper bound breakthrough due to low volume for TTGL. Would the same logic be relevant for CPNE.
Thanks
Shabber
Editor: I guess they are both behaving the same way. Not much parallel in their business models. They both need more volume to get really going.
What about the new SEC-Filling from yesterday evening? Looks like Feinberg & Co sold out! I’m a little bit worry about it, you told us his a smart guy..
Editor: Sometimes, a little knowledge can be dangerous. This is funny. If you are referring to the SB2/A- you are simply wrong. You know how to look up the SEC filings, but you don’t what they mean. His shares are in “registration”, which means the company has filed a document with the SEC to allow him to sell all his shares if he chooses to. The A means they filed an amended version, which means it is not effective yet- meaning he can’t sell any of his shares even if he wanted to. We you see “Notice of Effectiveness”, you will know he could sell them if he wanted to, but doesn’t have to. I applaud your effort to look at the filings, but if you don’t know what they mean, don’t jump to any conclusions. By the way, so far, he doesn’t look all that smart on this stock, but the tide could turn. You will have no way of knowing if he sells until long after the fact.
When a company files a SB2/A it’s useful to examine what has been changed in the amended filing. In this case, the amendment reduces the number of warrants to be registered. Note common stock outstanding after offering will be 50.8M compared to 54M in the March filing. This is a positive change from the original filing.
Editor: Thanks for the contribution. Sometimes, it’s tough to find the amendment. It’s usual some language nonsense the SEC wants changed.
I AM A DIABETIC, TYPE 2.
I OWN 10,000 SH OF EFSF
AT 0.29 CENTS A SHARE.
LAST NIGHT, I WENT TO WALMART AND
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I WAS SURPRIZED. IT IS LIQUID. I TOOK
1 OZ AND IT TASTED GOOD.
MY BLOOD SUGAR LAST NIGHT WAS 166
THIS MORNING IT WAS 111
THE COST WAS$16.00 FOR A SIXTEEN OZ BOTTLE.
AT 1 OZ PER DAY, THAT $32.00 PER MONTH.
THE ‘E’FOOD STOCK SHOULD GO TO $1.00
BY THE END OF THE YEAR.
THIS MORNING IT WAS 111
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