...viel spass bei der lektüre:
October 21, 2006
Volume VII, Issue 83
Home Page : www.otcjournal.com
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To OTC Journal Members:
What's Wrong With Commerce Planet (OTC BB: CPNE)?
Commerce Planet- the stock that has been so hot it left orbit this year- our triple since the last earnings release has been a mess these last couple of days.
I know what you're thinking. The stock was $1.80 two weeks ago, and today actually traded below $1 for a brief moment in time. Why? - The company delivered a stellar earnings report in the June quarter, and since releasing the earnings on August 3rd, the stock had more than tripled in price.
Here's what you're thinking- what's wrong with Commerce Planet? What does someone know that I don't know? Why has the stock been flushed down the proverbial toilet of late? Is the company's business derailed in some way?
All good questions, and questions any sane investor would be asking after the drubbing we have taken in the last two weeks. There are two components to the answer- the fundamental side and the technical side. Let's start with the fundamental side.
I have checked all my channels to see if anyone know of any reason this company is not continuing on its current path. All indications are the company is not derailed in any way. It's a growing business as usual.
If fact, CPNE issued a press release on Friday concerning a move to international growth, and the following statement was included at the end:
"The company anticipates filing its quarterly results in the beginning of November and expects growth quarter over quarter."
In its way, CPNE was letting the market know there has been no fundamental change- the company is continuing on its current path. Here's a little history:
Q1 of 'o6: $3,932,343 in revenues, $194,380 in net profits- less than $.01 per share.
Q2 of '06: $7,086,818 in revenues, $1,460,117 in net profits: $.04 per share in earnings
Growth from Q1 to Q2 was basically astounding, and the stock responded in kind by making nearly a 10 fold run from the March low of $.19 to the October high of $1.80. Not a bad start.
Here's something you could only learn if you dug into the SEC filings and understood the significance. In the June quarter, CPNE paid off all its debt- the company now has a totally clean balance sheet and cash is building. They paid off their debt very early- in fact years early. In return for paying off its debt, the company paid a $1 million, one time fee.
Therefore, since the company does not have to make the same kind of payment in Q3, zero growth should deliver about $2.4 million in earnings, or about $.05 for the quarter. This assumes margins remain the same.
On the slightly negative side, quarter to quarter comparisons will definitely not be as strong as Q1 to Q2- Q3 is a seasonally weaker time of year for the company. However, based on Friday's news, we know they will report growth.
I believe the market will like the Q3 numbers. I believe they will come in fairly robust. Does this guarantee the stock will go up? No- the market is not always efficient or logical.
Now, let's look at the technical side.
During high stress moves like this it often makes sense to look at the bigger picture. In the case of CPNE, I have been presenting fairly short term looks at Fibonacci retracement levels. Let's take a slightly longer term perspective.
The behavior of this stock changed quite dramatically when the company announced its Q2 earnings on August 3rd. That's when the stock really started to charge up the charts. It moved from $.50 to $.70 on the first day, took a brief breather, then headed further north.
If you draw the 61.8% retracement from the beginning of the rebirth of the stock in early August, you learn that the uptrend really remains intact. We're only going back 2 1/2 months, but it was a pivotal moment in time. As it turns out, the perfect 61.8% retracement for this stock is $.998. Readers know I love 61.8% retracements as ideal low risk entry points for stocks on the move.
In my view, Friday's action was extremely important. The stock made a low of $.97, within $.02 of the perfect retracement, and rebounded to close at $1.14. Equally important to the price was the volume. In terms of dollars changing hands, it was the highest volume day in the stock's history. In August it traded about 2.5 million shares, but that was at the $.50 level. Yesterday it traded over 1.7 million around $1- many more dollars changed hands. Friday was total capitulation day.
Some shareholder was the catalyst for the drubbing. I have checked with everyone I know associated with the company, including the CEO, and no one has any idea who owned enough shares to get this sell off started.
So, back to the key question we are addressing. Is the stock selling off because someone knows something we don't know? or did someone sell for reasons unrelated to the company?
I don't know for sure. I do know that people often sell stocks for many reasons. Perhaps some fund manager had redemptions or margin calls, and was forced to sell. Perhaps someone with a lot of stock needed the money to buy a house. I just don't know.
I am certain once the stock started dropping, there were many "momentum" traders who sold just because the stock was going down. It became a selling frenzy. That's why Friday's volume was so important- it signaled what I hope was exhaustion of the selling, and buyers wrestling back control.
In my view next week is technically critical. If this stock wants to head back down and trade down into the $.90 range or lower, all bets are off. As far as I am concerned, it will all be over for now. However, if it firms or drifts up, it will be a strong indicator Friday's sell off was a great buying opportunity.
Here's the last question many of you have asked: Do I still have a $2 price target on the stock for this year? The answer is a definite maybe. While this correction certainly sets the bar a bit higher, this stock could easily rebound and find $2 in the traditional Santa Claus rally. I will withhold final judgment until Q3 earnings come out.
In case you are wondering, I did speak with CEO Mike Hill on Friday. I can't share everything I learned, but I can tell you he wants investors to know the company is still on track to deliver growth.
euer
goodman666
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