CPNE.OB

[David Randolph]

1. Introduction

As you know I've been making quick studies of about 20 stocks per trading day on the 3 Stocks on Fire Portfolio message board. This means I've covered about 160 new stocks over the last 8 days.

I dislike most of them, but some I like, and just a few I love. CPNE.OB is more than love, it is exactly the kind of stock and business I've been looking to own for the long term.

2. Profile

Commerce Planet, Inc. (CPNE.OB), together with its subsidiaries, operates as an online commerce and business solutions company in the United States and internationally. It provides e-commerce, business and media solutions, and loyalty club memberships through its Web sites, onlinesupplier.com, buydiscount.com, and mysoftwaretutor.com.

3. Technical Analysis
3.1. All history chart



This is a classic penny stock chart, but also classic for many technology stocks.

3.2. Medium term chart



The trend has been up since last April or so, and yesterday the stock made a powerful bullish breakout above its medium term resistance. The medium term trend is clearly bullish.

3.3. Short term chart



That is a powerful white marubozu with volume above average. The short term trend is bullish (I refuse to consider overbought/oversold indicators, been there, done that - they don't work).

So, overall, technical analysis favors a buy order for CPNE.OB. Let's hear the fundamental tune.

4. Fundamental Analysis
4.1. # shares outstanding + market cap



Naturally there has been dilution over the latest quarters as the company was still losing money, but not much recently, as it turned profitable and cash flow positive.

In fact, the company initiated a stock repurchase plan:

• CommercePlanet Announces $2,000,000 Stock Repurchase Program
PR Newswire (Tue, Nov 28)

The current market cap is 47.5 million shares outstanding*$2.35 = $111.6 M

4.2. Long term debt + current ratio



You can see on the graph above how long term debt was reduced to almost zero, just $48 K in Q3 2006. The graph also shows how the short term liquidity picture improved, with the current ratio now comfortably above 2.

4.3. Revenues + gross margin



You can see I'm comparing CPNE.OB with Google. That's because I think they are more or less in the same space, serving as intermediaries on the internet, between businesses and consumers.

Of course, CPNE.OB is growing from a very small base, hence the big growth differential, but also check the higher gross margin for CPNE.OB, at 86%, and the much lower price to sales ratio, 4 for CPNE.OB and 16 for GOOG.

Given the growth differences and the higher gross margin for CPNE.OB, it should trade at a higher revenue multiple than GOOG. That would make CPNE.OB's share price more than quadruple from current levels.

4.4. EPS + net profit margin



Again, CPNE.OB has a superior net profit margin when compared to GOOG (at least considering Q3 2006), but the forward earnings multiple is about 8 for CPNE.OB and 36 for GOOG.

5. General Overview

CPNE.OB looks too good to be true. But I've read their latest SEC filings and found nothing wrong. It looks like a company that took some time to find its true business model on the internet, but now found one that is extremely profitable.

I've been looking for businesses like this, being based on the internet and showing very fat gross and net profit margins, because I know the market values them a lot (the same happens with software companies, many times they don't sell a lot, but almost all of what they sell is profit).

CPNE.OB's business is somewhat complex, with several subsidiaries and trying to do everything at the same time (what a 30 year old would do, the CEO, Michael Hill, is just 29 years old, even that resembles Google), but the big revenue jump and profits are coming from www.onlinesupplier.com.

People pay about $40 a month for the dream of working from home, establishing an e-commerce business (and maybe not just the dream, with a bit of work they will probably get those $40 back plus more to add to their regular income). The company connects producers and online retailers wanna-be, serving as an intermediary, the way google does with advertising.

I guess CPNE.OB is exactly the kind of business/stock I've been looking for. I would love to own it myself.

I can do that, at least partially, all I have to do is buy some shares. That's what I'll do today (yesterday I bought a small position for the 3 Stocks on Fire Portfolio at $2.08, but that's for short term trading purposes, not to own a business).

I still have some doubts about how everything works with all subsidiaries of Commerce Planet, and you know, this is an OTCBB traded stock, so one can be deceived, but I believe the profit potential clearly outweighs the risks.  

6. Trading Plan

Buy 6.66% of capital on CPNE.OB for the Main Portfolio

[David Randolph]

I'm confident Q4 will be even hotter that Q3 at CPNE.OB, look at the latest press releases from the company:

• Commerce Planet's Consumer Loyalty Group Announces All-Time Records for New Memberships
PR Newswire (Tue, Dec 12)

«Consumer Loyalty Group, enrolled an all-time daily record of 3,466 paid memberships for December 6th, 2006. In addition, the week of December 4th set a new all-time weekly record for membership signups of 19,600.»

«Commerce Planet CEO Michael Hill stated, "We are finally beginning to fire on all cylinders. Our new-membership growth experienced a dramatic increase in volume for the month of November and has continued to gain momentum into the month of December. I am excited to see the results of this surge in order volume as it translates into top and bottom line revenue."»

• Commerce Planet's Consumer Loyalty Group Sets New Record for Monthly Memberships; Third Consecutive Month of Order Growth
PR Newswire (Thu, Jan 4)

«Commerce Planet, Inc. (CPNE.OB) announced today that its subsidiary, Consumer Loyalty Group, enrolled an all-time monthly record of 71,971 paid memberships for December, 2006. This represented an astounding 50% month-over-month increase in paid memberships from November.»

You see, I wasn't even considering these latest news on my initial analysis, which already showed incredible growth rates and profit margins. I can't wait to see how Q4 numbers will look like, when the company reports them just a few weeks from now (they said they will file the 10-K with the SEC in late February).

Just buy and hold CPNE.OB.

[Terliso]

David, is CPNE.ob is trading now @ all-time high? Stockchart.com & Metastock Software have different all history chart..

[tokyopua]

Hmm, that is odd.  I get basically the same chart as you Terliso with stockcharts.com:

http://stockcharts.com/h-sc/ui?s=CPNE&p=D&st=1998-08-01&id=p40055820495

but on my etrade, it looks a lot more like Davids data, but shows the high in 98 at about $240!  There was probably some splits or something that affected the data?

[David Randolph]

I think stockcharts.com chart is incorrect, because it's not considering the reverse splits. Look at the spike in the beginning of 2004 on your chart Terliso, probably that was a reverse split. Adjusting for that reverse split you probably get a chart that resembles mine.

Tokyo, it looks like your etrade chart has more data than my Metastock database, yours goes back to 1998, and mine only goes back until late 2000.

But there's no doubt about it, there were several reverse splits and share count increases along the way, so the chart doesn't correctly reflect the evolution of the market cap.

It correctly reflects the evolution of the share price, that is, someone bought at $240/$2.4 = 100 times more than the current share price (in relative terms), so, if he held all the way since 1998, he's losing 99% of his money.

But, I'm positive that CPNE.OB is at a new all time high in market cap terms. Current market cap is $2.4*47.5 million = $114 M.

If this is all new and confusing to you, here's a good chance to solve those doubts, just ask on this thread, I'll be glad to address them.

Let's make a 4th quarter estimate for revenues and EPS for CPNE.OB.

Revenues in Q3 were $7.627 M. Net Income was $3.114 M. We had two press releases saying that the company enrolled an all-time monthly record of 71,971 paid memberships for December, 2006. The subscription price is $49.95, so I see $3,594,951 in new revenues just in December.

The press release says December's numbers were 50% above from November's. I get 35,985 new memberships in November. That counts for $1,797,475.

Let's consider monthly growth in November was also 50% from the prior month, October. I get 17,993 new subscriptions in October, that means $898,725 in new revenues for that month.

Now let's consider a very high costumer churn of 50%, each month (I don't know if this is too high or not, it depends on the quality of the service).

October contributes with $898,725 + $449,362 + $224,681 = $1,572,768 for Q4.

November contributes with $1,797,475 + $898,737 = $2,696,212

And December gives $3,594,951 in new revenues.

Sum this up and get $7,863,931 in new revenues for Q4, 2006.

Of the $7,627,533 Q3 revenue, $6,036,364 came from subscriptions. The rest came from the company's other subsidiaries, that is, $1,591,169, which we will leave constant.

Assuming the same monthly churn of 50%, the $6,036,364 obtained in Q3, divided by the 3 months, are $2,012,121.

So, this gives me just $1,006,060 for October, $503,030 for November and $251,515 for December. That is a $1,760,605 revenue contribution for Q4.

Summing it all I get $11,215,705 for 4th quarter revenues. If they maintain the net profit margin of Q3, which was 40.83%, net income for the quarter will be $4,579,219, which translates into $0.0964 EPS.

Annualize this quarterly EPS number and get $0.3856 EPS for a full year (not considering growth), and that means CPNE.OB's forward earnings multiple is 6.22.

What I'm very curious to find out is the actual churn rate. I'm considering their service is really a piece of shit, you know, because to have half of the subscribers canceling their subscription each month it really needs to be bad service.

Given this I guess there can even be a positive surprise to these estimates ... we'll see.

One thing is for sure. CNPE.OB is a strong buy at current levels.

[boatguy]

Better Business Bureau report shows almost 300 complaints.

http://www.santabarbara.bbb.org/BBBWeb/Forms/Business/CompanyReportPage_Expository.aspx?CompanyID=2000066

I don't think this is a significant number considering the numbers of members they are citing.

[nullzero]

Is there a selling plan on CPNE? Or plan is to hold through earnings... Im up almost 50% and was deciding if I should sell out 50% of my holdings once 50% gain is reached and let the other half ride. I would hate to see these gains vanish as it has happened before with other stocks.

[kpunarc]

how much do you guys think this is currently worth? and when is earning?

[capricho]

Here's a not too flattering consumer review of onlinesupplier.com:

http://www.explorewholesale.com/reviews_pg2.html

Despite the bullish run of CPNE.OB I'm weary of investing in companies whose business is not well received by their customers.

[WallStreetnBio]

Well if they earn .09 this quarter, plus the last 3 quarters, with a 20 PE ratio thats $3.6

If they continued to earned .09 a quarter with no growth for 2007 with a 20 PE ratio thats $7.20

If they continued to add .03 to the EPS every quarter like they have been... EPS for the next 4 quarters would be .09+.12+.15+.18= .54 with a 20 PE ratio would be $10.80

I guess it all depends on your long or short term outlook and if the company continues this growth which looks very promising. Anything over .09 would be very bullish IMO

[lancefur]

Is there a selling plan on CPNE? Or plan is to hold through earnings... Im up almost 50% and was deciding if I should sell out 50% of my holdings once 50% gain is reached and let the other half ride. I would hate to see these gains vanish as it has happened before with other stocks.

I can appreciate this greatly and have often wondered this myself. I have seen differing patterns on this site and recommendations. If memory serves me, I believe David doesn't recommend this but I saw Ramsburg recommend this on DIVX back in December when it was smokin but then gradually started a decline.

With that said, since this thing has risen strongly very quickly, I bet it could also go in the opposite direction just as quick. But looking at it technically, it appears not to have a problem at the moment. Of course fundamentally it is still quite strong but anything can happen.

I didn't spend the time to look this up on the site but I wonder if there is a forum talking about this very topic? 

I am still going to hold for lot longer and see what happens until I see the charts tell me otherwise. GLTA

[David Randolph]

Better Business Bureau report shows almost 300 complaints.

http://www.santabarbara.bbb.org/BBBWeb/Forms/Business/CompanyReportPage_Expository.aspx?CompanyID=2000066

I don't think this is a significant number considering the numbers of members they are citing.

This is valuable information boatguy. If the monthly churn rate is, say, 20%, instead of the 50% I was considering, results will be much, much higher than I was estimating.

But still, even with my very conservative estimates, CPNE.OB should rise 4 or 5 fold to be fairly valued

Is there a selling plan on CPNE? Or plan is to hold through earnings... Im up almost 50% and was deciding if I should sell out 50% of my holdings once 50% gain is reached and let the other half ride. I would hate to see these gains vanish as it has happened before with other stocks.

I don't like that "sell half", "hold half" strategy. A man either buys or sells, "selling half" is like not knowing what he's doing, or being afraid. Money comes from confidence, not fear. "Sell half" increases confusion in one's head ... so, is it a buy or a sell? "If I'm holding half, it probably is a buy. On the other hand, since I sold half, probably it is a sell, I should sell the other half". These doubts will never leave you if you sell half, and you'll sell the other half pretty quickly on any shake out.

how much do you guys think this is currently worth? and when is earning?

I think CPNE.OB has it all to be a 10 or 20 bagger, if one has the ability to sit tight and let the profits run. He also needs strong hands to hold on the several corrections that will happen without a doubt.

Earnings will be out near the end of this month.

Just with the current publicly known information I think CPNE.OB is worth more than $14 a share, not considering possible future growth.

Here's a not too flattering consumer review of onlinesupplier.com:

http://www.explorewholesale.com/reviews_pg2.html

Despite the bullish run of CPNE.OB I'm weary of investing in companies whose business is not well received by their customers.

Thanks for the link capricho

So, they keep calling to sell their products to their costumers? That's annoying? Great for shareholders !

You need to keep in mind that you're a shareholder, not a costumer. A shareholder wants revenues and profits. Costumers want different things, if they could, they would want excellent service without paying.

Those concerns are legit on a very long term basis, and these reviews explain why I consider such a high costumer churn rate of 50% monthly.

Well if they earn .09 this quarter, plus the last 3 quarters, with a 20 PE ratio thats $3.6

If they continued to earned .09 a quarter with no growth for 2007 with a 20 PE ratio thats $7.20

If they continued to add .03 to the EPS every quarter like they have been... EPS for the next 4 quarters would be .09+.12+.15+.18= .54 with a 20 PE ratio would be $10.80

I guess it all depends on your long or short term outlook and if the company continues this growth which looks very promising. Anything over .09 would be very bullish IMO

Nice math prodigykid6, that's the way to go

I think CPNE.OB should have a higher than 20 multiple, because of its growth rate and extremely fat gross and net profit margins.

With that said, since this thing has risen strongly very quickly, I bet it could also go in the opposite direction just as quick.

No, no, stocks don't work that way.

I didn't spend the time to look this up on the site but I wonder if there is a forum talking about this very topic?

You mean, a topic like "when to sell"? No, there isn't, but you can create one if you please on the Members Corner.

Ok, since you're so anxious about CPNE.OB (you should be more anxious and nervous when you're losing, you need to fight those natural instincts, a speculator is a different kind of man), I'll tell you what my selling plan is:

- On the 3 Stocks on Fire Portfolio I plan to hold all the way in February, expecting a gap up on the 4th quarter earnings release to take profits on the news.

- On the Main Portfolio I'm going to hold it for the long term, through the ups and downs, for as long as I see 20 bags of profit in this stock, I'm not willing to let go of it for less than that. It's very rare to find a stock with this kind of profit potential, if one misses these ones, it will be much harder to be head and shoulders above all rest in terms of performance !

My recommendation today, besides obviously being to sit tight and keep on holding CPNE.OB, is for you to read the following: Reminiscences of a Stock Operator (pages 60 - 71) ... especially this excerpt:

«And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit.

And their experience invariably matched mine - that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves because they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.»

Have a nice day

[boatguy]

News

Commerce Planet's Consumer Loyalty Group Sets New Record for Monthly Memberships; Fourth Consecutive Month of Order Growth

http://biz.yahoo.com/prnews/070205/lam048.html?.v=69

Consumer Loyalty Group, Inc. enrolled an all-time monthly record of 91,729 paid memberships for January 2007. This represented another astounding month- over-month increase in memberships from December of over 25% and over 90% from November.

[Michael]

News

Commerce Planet's Consumer Loyalty Group Sets New Record for Monthly Memberships; Fourth Consecutive Month of Order Growth

http://biz.yahoo.com/prnews/070205/lam048.html?.v=69

Consumer Loyalty Group, Inc. enrolled an all-time monthly record of 91,729 paid memberships for January 2007. This represented another astounding month- over-month increase in memberships from December of over 25% and over 90% from November.

Using David's assumption that only 50% of the new subscribers will continue their subscriptions January added $2.3 million in new revenue. Remember this is on top of the base revenue from previous months. That is phenomenal for a company of this size (I will try to post a bit more sophisticated revenue model later  ).

I know that David advise us to sit tight but I am afraid I might add a bit today in case we are seeing some weakness 

This is a golden opportunity.

[David Randolph]

Using David's assumption that only 50% of the new subscribers will continue their subscriptions January added $2.3 million in new revenue.

I'm wondering about these calculus Michael. What is the price you're using for each subscription?

On some consumer complaints I saw they charge $49.95, on capricho's link I see $29.95, on the Terms and Conditions of their service I get this:

«f you subscribe to a service on this site that requires payment of a fee, you agree to pay all fees associated with such service, including the activation fee and the monthly web hosting fee of $49.95. For all charges for services on this site, we will bill your credit card or checking/savings account provided to us at activation. Recurring charges will be billed to the account you have provided us at the time of activation and will be billed every 30 days thereafter unless you contact customer service to cancel your membership. You agree to provide us with accurate and complete billing information, including valid credit card/checking/savings account information, your name, address and telephone number, and to provide us with any changes in such information within 10 days of the change.»

If the price is $49.95, the 91,729 paid memberships for January 2007 should warrant $4,581,863 in new revenues, not $2.3 M as you say.

Ok, ok, I see what you mean, you consider 50% of people will be out, but that's just for the next month (February), in January, just from new subscriptions they got something like $4.58 M in revenues.

Another part of this press release that I like is:

«I look forward to releasing our annual 10-KSB earnings report in the later part of February and sharing how our recent growth should correspond to increased earnings per share.»

Any way we put this, it is clear CPNE.OB has a long way to go north