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.
