The Hawk Catches an Updraft

I just love the NIHK chart. Once again, the 61.8% retracement proves to be the low risk entry point for a stock.

If you are a follower, you probably noticed NIHK announced it had taken over $300k in orders in Q1. This doesn’t mean they will deliver $300k in sales, but it does mean they are continuing to grow at a healthy pace. As I have been saying, NIHK is likely to double in size in 2007 without any mega orders, and start the process of evolving to a recurring revenue business model.

On the news, NIHK, which made a big run, fell back, and was then a little oversold, bounced nicely.

Here is the chart:

As you can see, the stock made a beautiful surge, and then fell back to a high low. It did trade a little below it’s perfect 61.8- but close enough.

Note the nice bounce yesterday as the news restored everyone’s faith.

Love the way this one is trading. Continue accumulating on dips for a shot at $.25 later this year. They have a few home run potentials, but easy to hang on to with the numbers improving on the singles.

Comments and questions are welcome.

Reader Contributions on The Planet

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 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.

The Hawk Glides Back Towards Earth

NIHK finally filed its only slightly delinquent annual audited financial statement last night, and things were pretty much as I expected them to be.

As I have said all along, my expectations are for NIHK, as a minimum, to double its sales levels from 2006 to 2007.

I was expecting to see perhaps $1 million in revs for the first time in ’06, but they came in at $900k. This means they did about $300k in Q4- which is the most they have ever achieved in their entire history in one quarter. Always nice to see.

Of even greater importance- and a pretty good achievement- their convertible debt level came down by nearly $1 million in Q4-from $2.8 million to $1.9 million. That’s simply great to see, and it will no doubt come down considerably more in Q1. The stock’s recent strong performance for both volume and price will aid that picture considerably.

I am pretty excited about the possibilities for 2007- as CEO Doug Saathoff notes in his press release concerning the numbers- the company has expanded its base of existing customers in the utility space, and uncovered a number of new applications for its technology outside the utility space. There are a number of home run possibilities looking out into 2007. Many more than we had at the beginning of 2006.

NIHK has been backing off a bit of late. Investors were reminded with the filing of yesterday’s 10k that Nighthawk is still a little company with pretty big potential.

Based on the current I&O- which stands at about 96 million- we can figure there are 100 million I&O, and that number will probably continue to climb. Therefore, at $.20, the market was placing a value on Nighthawk of $20 million. It was, perhaps, a little ahead of itself.

The stock pulled back a little as I was cautioning everyone it probably would, and here’s the chart as of today. No big surprise- look what happened when it hit the 61.8% retracement of the recent run:

The stock hit the $.14 level, which was the perfect 61.8% retracement, and bounced. This works nearly every time.

As I cautioned everyone when the stock was trading at $.20- investors were buying because the stock was going up- not because they liked the company.

You need to like the company first, then accumulate at levels that give you upside.

I still believe NIHK can be a $.25 stock in 2007. They just need an expansion of sales down some of the roads they are pointed towards. Factory ventilation with DaimlerChrysler could lead to bigger and better sales. Cell phone tower generator remote starters with Verizon could be in the pipeline. EL Paso G&E could greatly expand the recurring revenue model, and the utility sales could really take off.

$.14 seems like a much better level for accumulation with a $.10 SSL. The stock is behaving pretty much according to the book.

Planet Numbers In; Still Undervalued

The Planet offered up some preliminary Q1 numbers post close today, and I’m guessing the results are going to allay investor fears and shift the focus again on how undervalued this situation continues to be.

CPNE disclosed it will deliver $13 million in revs in Q1. Until I see the actual financial statement, I can’t really comment on whether it is a strong number- remember, they have subsidiaries that do business with each other, so I’ll have to see the treatment to comment. Also, the revenue mix of their three subsidiaries will be important- Are the other two divisions growing? or are the majority of the revenues still coming from subscriptions? Investors would probably like to see some growth in the other two divisions.

Revenues aside, profits are profits- and with this company profits are cash. The bottom line- they made $4.6 million in cash, and will be able to report $4.1 million in profits after $500k in non-cash expenses. These guys are generating $1.5 million per month in excess cash flow. Outstanding.

Here’s another mystery- I don’t know how many shares will be I&O when they report. Some will be gone from the last financials they have bought back $1 million worth of stock as of the last disclosure.

They could have added stock or warrants with the new advisory relationships they have. I’m guessing the EPS will come in around $.10. If they can just keep up the pace, they will end up with $.40 per share in earnings this year.

On one issue there can be no doubt- CPNE has proven itself for another quarter, now making it five in a row. I wonder when investors are going to start doubting the company and just buy the stock.

It will be interesting to see what happens tomorrow to the price. On the basis of corporate performance, there is really no reason to sell the stock, and lots of reasons to buy. That’s what makes sense. As we know, the market doesn’t always make sense.

To Mike Hill and all the guys: Keep up the great work- outstanding performance again. Let’s hope the market gets its head out of its proverbial hind end and prices this one where it belongs.

Comments and questions are welcome.

PS- I’ll bet when they file the actual 10Q, the numbers come out even better than preliminary results.

eFoodSafety: Comatose and Looking Tasty

Class, we are in session again. Trading 102 this time. As a reminder- what do we do when stocks we like are trading up on high volume, spiky surges? We lighten up. We sell part or all of them (see NIHK).

And, what do we do when stocks we like are trading listlessly, on pullbacks, and no one wants them or cares anymore? We accumulate.

Tongue in cheek aside, all the traders who were previously infatuated with EFSF as it had its two month run from $.18 to $.50 are no longer paying attention. Why? because the stock has been quiet of late and dropping on light volume in small increments. It has been a lackluster market environment as the soothsayers on Wall Street try to figure out why last week’s jobs report was so great against a backdrop of the foreclosure epidemic. If you believe these guys, you would think the lousy 1 million at risk mortgages are going to bring the economy to its knees. $75 oil couldn’t do it- so why should a minuscule percentage of high risk loans do it? Please.

If you like EFSF as I do, you have to pay attention now- Why? because no on else is paying attention now, and the stock has retracted to a very favorable entry level.

Without further adieu, here is today’s chart:

Here’s what jumps off the chart to me. Look at the volume dry up in the stock. As the stock drops listlessly, traders lose interest.

Also, look at the perfect 61.8% retracement as measured from the $.25 level- it’s first stop north of the original $.18 entry level. Anybody pick up CPNE last week at $1.65 when I called the prefect long term 61.8% retracement? It closed at $2.04 today.

Numbers should improve dramatically for the remainder of this year. This company has a number of home run hits in the line up. Cinnergen sales are now picking up daily, and several other products are nearing commercial introduction.

Of note- my SSL on the stock is $.36. It’s just a suggested level, and a level where it is time to re evaluate. SSL revised to $.30, where we can re evaluate again if we ever get there.

In light of the low volume relatively speaking, I believe in this case it is more of a buy than a need to protect your principal.

The company has been quiet of late, but anyone who follows this story knows quiet doesn’t last long with EFSF.

Accumulate while no one is watching. You can be a seller when they’re all piling in and the stock is going up because it is going up. (Again, see NIHK).

Comments and questions are welcome.

The Hawk Soars Into the Statosphere

NIHK- wow- trading up far beyond my expectations. Awesome. This is some bird. It’s really flying.

You might be thinking I made a bad call. I suggested a partial or full sell on the stock April 2nd when it traded up to $.16. Today it hit $.24 at its absolute peak, and is now hanging in there around the $.19 level.

Being wrong about the top is kind of a high class problem- like having to pay too much in taxes. If that’s the biggest problem I ever have to deal with in the microcap world, then life will be beautiful from here forward. I’ll live with it. Sorry.
If you own this stock from when I first featured it in the Fall at around $.04 it is still probably prudent to make a partial sale.

Right now, NIHK is going up because it is going up. The kind of investor who buys a stock because it is going up is the same kind of investor who will sell a stock because it is going down. A lot of the hot money at $.24 is probably going to sell at $.18. If you liked it at $.24, why would you sell it at $.18?

Here’s today’s chart:

As you can see, my suggestion to lighten up on April 2nd at $.16 was a little premature. However, this is the chart of an overbought stock that is due to correct.

I have been getting a few emails from members on the upside of the equation- I have seen charts suggesting the stock is going to $.29 on this move.

Perhaps it will. In any case, it’s a whole new day for NIHK- the bar has been set considerably higher than in past years, and when it does correct we will be starting out from a much better level.

Today, I believe NIHK is more of a sell than a buy- simply on a technical basis. If the stock falls back, my view could change in short order. When it’s time to load up again, it will be at a much higher level than on past pull backs.

Comments and questions are welcome.

Universal Capital: Handling the Gap

The first day of coverage on UCMT yielded no big surprise. I thought this one would be hard to buy, and I was right.

After all, there are only 5 million shares I&O- the lowest number of any company I follow, and the vast majority of those shares are probably held fairly tightly. After all, the growth rate is extraordinary, the portfolio has some huge upside, and the company pays free trading shares of its portfolio company as dividends. Not much reason to sell.

The stock opened a little too strong- the first print was at $1.78 followed by $1.95. Then it settled back into the $1.75 to $1.80 range for the first 1/2 hour.

Here’s a look at the chart:

In the case of UCMT, I’m not terribly worried that today’s volume surge will be met with any sort of significant pullback. After all, the stock was $4 last summer, and north of $2.50 last October.

It has been many months, and anyone who wanted to sell has had plenty of time to do so. The other side of the coin- sometimes the new found volume and price appreciation brings some formerly inactive sellers out of the woodwork.

Here’s what happens- they don’t realize it’s a new day for the trading activity in the stock. They go “whew” and sell because they hadn’t been able to for months. Next thing you know- the stock turns around and heads back up and they go “what was I thinking?”.

My instincts tell me this stock is probably not going to give much ground from the roughly $1.80 level. It could have come back to fill the gap, but it didn’t. It simply fell back a little, and off we go.

My bet is the next volume surge takes the stock north of $2.

Look for lots of activity in from the company, and a much improved audience and shareholder base going forward.

I believe it is ok to accumulate this one in the $1.80 range. For now, your SSL is $1.50.

Comments and questions are welcome.

NightHawk: Profit Alert

Welcome to microcap stock trading 101. The introductory class.

Now, class: What do we do when stocks we like are cheap, quiet, and no one wants them? We buy.

What do we do when stocks we bought cheap are making big, spiky runs on high volume? We take some money off the table. You know why? Because the stock will get cheap and quiet again.

Here’s today’s chart of NIHK:

My price target on the stock was $.13- longer term $.25. Today the stock is trading at $.15 on big volume after making a big, spiky run.

So, in order to move on to the next class- trading 201, what do you do? Take some profits if anything.

You don’t have to sell it all, and it could power higher. However, now, would be a good time to take a few bucks off the table.

Comments and questions are welcome.