Video analysis for CECE:
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I've reviewed the fundamentals of CECE and listened to yesterday's conference call. The common valuation metrics, like the Price to Sales Ratio and the Price to Earnings Ratio point to a quite undervalued picture when compared to the Pollution & Treatment Controls industry, which is trading at 2.6 times sales and 54 times earnings.
Moreover, my conservative long term estimates point to an average annual return on investment of 25%, which is attractive. This doesn't mean I'll hold the stock for 10 years to get a 25% average annual return, it means the stock is trading at a discount given what we can extrapolate from current fundamental trends.
The trading plan is:Buy CECE for the Main Portfolio (http://www.3stocksonfire.org/3stocksonfire.php), 6.66% of capital as always.
David, sorry for off-topic. But I bought OFI back around $5.6 a while back, what target price would you recommend on this one? Based on your analysis the other day, I believe it is not good enough for you to buy this one back anymore? Thanks.
I bought CECE last week at 14.61$, good to have you on board David! ;)
Quote from: realcoolhead on March 28, 2007, 08:19:36 AM
David, sorry for off-topic. But I bought OFI back around $5.6 a while back, what target price would you recommend on this one? Based on your analysis the other day, I believe it is not good enough for you to buy this one back anymore? Thanks.
No problem realcool :)
OFI looks attractive on a revenue and earnings multiple comparison and previously I considered that to be very important, as I didn't know better. My current fundamental approach considers not the absolute comparison between multiples, but the expected rate of change for those fundamentals.
Within this second approach OFI looks like an average long term investment, that is, given what we can expect from current fundamental trends, the stock will return about 8% on our investment, which is average. This doesn't mean it won't go up to $12 - $15 in 2007-8, it just means that it won't outperform on a 10 year grand scale, unless there's a fundamental shift towards more profitability, but being a food related business, I don't know how fat margins can get in that sector.
Now you decide, good luck :)
Hey David (or anyone that could answer)...how do you get the 'multiples' to figure out how to determine the price of a stock...
EPS * multiples = share price (correct me if i'm wrong)
Quote from: kpunarc on March 28, 2007, 12:24:15 PM
Hey David (or anyone that could answer)...how do you get the 'multiples' to figure out how to determine the price of a stock...
EPS * multiples = share price (correct me if i'm wrong)
When I say "multiples" I'm talking about the revenue and the EPS multiple.
Revenue Multiple = Market Cap/Annual Revenue
EPS Multiple = Share Price/Annual EPS (or, which is the same, EPS*Multiple = Share Price as you say)
I don't "figure out" or "determine" the price of a stock, the market does that :)
Let me know if you have any further doubts. Thank you.
ahh....you're awesome. thanks ;D
Thanks. I think I will hold it for a little while, at least until the next earning report.
I am a member of AAII (American Association of Individual Investors). One thing I like about it is that they have some pretty cool stock screening tools. I have been looking at it and some of them are really impressive. I have attached an Excel file for the performance of all the screens. One of them called "O'Shaughnessy--Tiny Titans" is very impressive: it has 2,965% total return since the beginning of 1998 --- over 45% annualized. What is more interesting is that its selection criteria is very simple:
* Companies not based in the United States are excluded
* Companies that trade on the over-the-counter market are excluded
* Market capitalization for the latest fiscal quarter is greater than or equal to $25 million and is less than or equal to $250 million
* The price-to-sales ratio is less than one
* The final results are the 25 companies with the highest relative price strength over the last 52 weeks
I think it might be a good source for finding stocks for the main portfolio. If you are interested, I will list the current 25 (as of 2/28/07). Interestingly, MSI and OFI are on it :D, and HAUP is on it too.
(Just realized Excel file is not allowed for attachment, so I had to convert it to txt file.)
Quote from: David Randolph on March 28, 2007, 10:10:42 AM
No problem realcool :)
OFI looks attractive on a revenue and earnings multiple comparison and previously I considered that to be very important, as I didn't know better. My current fundamental approach considers not the absolute comparison between multiples, but the expected rate of change for those fundamentals.
Within this second approach OFI looks like an average long term investment, that is, given what we can expect from current fundamental trends, the stock will return about 8% on our investment, which is average. This doesn't mean it won't go up to $12 - $15 in 2007-8, it just means that it won't outperform on a 10 year grand scale, unless there's a fundamental shift towards more profitability, but being a food related business, I don't know how fat margins can get in that sector.
Now you decide, good luck :)
Sorry, I just realized I "polluted" CECE board one more time. :-[ I guess Member's Corner is a more appropriate place to post non-CECE related stuff...
Hi coolhead, I appreciate that screen, it makes sense to me, as it mixes technical & fundamental information. 45% average annual return is awesome, just to get an idea, Buffet only made 24% in his career (lately he has been making less than that).
That .txt file cannot be read, to insert excel files you just need to zip them first, the board accepts .zip files. That could be a very interesting thread for the Member's Corner, when you have some time, please post that table, thank you :)
Quote from: Se7en on March 28, 2007, 09:38:28 AM
I bought CECE last week at 14.61$, good to have you on board David! ;)
Nice entry price Se7en, I believe CECE will reward us going forward.
There wasn't anything new since yesterday, lets see how this investment unfolds and look for more fundamental information over the following daily updates.
I'll keep holding CECE.
Big intraday drop here on CECE with no news, I am in looking for a bounce at 13.33.
Wow, anyone know what is going on? Does CECE have some subprime mortgage business on the side we dont know about lol? :P :P :P
Bought at 12.72. Hope it was the right move.
Should I buy or wait this out? Currently at 12.62
Ouch! Still dropping. Gotta bounce.
I think it bottomed. We'll see. It may retest the low.
You're right... appears to be the bottom. I just might make $12.50 my entry point. Hopefully this is a wise decision and I won't regret it later. David's analysis make this stock look very attractive and I am a long term investor... so it appears to be a great buying opporutnity for me.
Looking good now.
Buying here at $12.50 good entry point
Hopefully,anyone buying under $13 will look back on this day and smile.
Wow I left out for the day now down -17% on the trade. Just bad luck :'(. I should of put a stop on the trade, I doubt I will be in green anytime soon.
I was just going over there last report and reading between the lines.
I think there earning will be downgraded alot more for 2007 and 2008.
looks for like .48 for 2007 .68 2008
If we get a bounce tomorrow I will sell what i bought today.
Margins are decreasing, sales going up
Quote from: yukiii on March 30, 2007, 12:49:03 AM
I was just going over there last report and reading between the lines.
I think there earning will be downgraded alot more for 2007 and 2008.
looks for like .48 for 2007 .68 2008
If we get a bounce tomorrow I will sell what i bought today.
Margins are decreasing, sales going up
Where did you get $0.48 for 07 and $0.68 for 08 yukiii? Thanks.
On Yahoo I see that estimates were lowered, but not to that point:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=34993;image)
I believe there's some misunderstanding in all this, because analysts are expecting Q1 2007 to be the weakest of the year in revenue and EPS terms:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=34994;image)
You see, they're expecting just $41.85 M in revenues in Q1 2007. But just two orders announced on January 3, 2007 will provide $55 M, so the estimate doesn't make sense at all:
• CECO Environmental Announces Two New Orders Totaling $55 Million (http://biz.yahoo.com/prnews/070103/clw043.html?.v=79)
PR Newswire (Wed, Jan 3)
There are only two analysts covering the stock, and I guess they were the ones asking questions on Wednesday's conference call. One of them was making assumptions based on this $55 M order having been booked in Q4 2006, and the CEO or CFO replied "but that order had nothing to do with the 4th quarter, it didn't exist back then", something like that. If you have time listen to the CC yourself:
• CECO Environmental Earnings Call scheduled for 4:30 pm ET today (http://biz.yahoo.com/cc/3/78953.html)
CCBN (Tue, Mar 27)
One analyst contacted by Reuters said he was expecting 18 cents EPS for the 4th quarter and got just 9 cents (hence the gap down on March 23). But probably that's the same man that thought the $55 M order would go to the 4th quarter numbers and he was wrong, it will go to the 1st quarter, 2007, instead.
Another issue is gross and net profit margin. Management clearly explained that there has been a change in their product mix towards the sale of more turnkey products. These products have lower gross margin, but higher net margin, and will increase the overall company's profitability. Management also said the $55 M order is a low gross margin project, but high net margin, because it will be almost all made by subcontracted companies.
When I came from the cinema yesterday and saw CECE down 17% I couldn't believe my eyes and I almost felt sick. But half an hour later I felt much better, as I'm getting used to volatility. There's a reason why I never get happy when I'm winning or a particular stock makes a good shot to the upside. That's because I don't want the opposite feeling, that is, the pain and sadness when losing. I try to maintain emotional equilibrium at all times.
As I analyze the situation, I see the potential for further downside due to the technical breakdown, but over the long term I see substantial value and a stock at new all time highs before 2007 closes.
I'll keep holding CECE.
It's a good thing I had to wait for my funds to settle until today. I wanted to get this for a few days now. I am glad...picked some up at 11.73 Hope it bounces back and the downgrades aren't too hazardous to this awesome looking stock.
8)
QuoteI believe there's some misunderstanding in all this, because analysts are expecting Q1 2007 to be the weakest of the year in revenue and EPS terms:
You see, they're expecting just $41.85 M in revenues in Q1 2007. But just two orders announced on January 3, 2007 will provide $55 M, so the estimate doesn't make sense at all:
David, maybe you should send a mail to that analyst and explain him why he's wrong! ;D
I found this on some stock market blog: ::)
Ceco Environmental recently reported Q4 06 results on March 22. They posted earnings of 0.09 per diluted share on revenue of 41.5 million. Revenue improved but the lack of earnings growth was a huge problem. In Q2 06 Ceco Environmental had earnings of 0.12 per diluted share on revenues of 31.7 million. This quarter they had almost ten million more in revenue but had three cents less in earnings. The lack of earnings growth and the huge run-up in the share price was a bad combination and the stock price has taken quite a beating in the last week.
Another problem with Ceco Environmental is dilution. In Q1 06 they had 10.91 million diluted shares. This quarter they have 13.17 diluted shares. Since earnings are not increasing the value of existing investor's holdings are declining.
I think Ceco Environmental is going to continue to decline and I would recommend watching the stock from the sidelines. If they can increase earnings in the future and stop diluting so much Ceco may be worth another look.
Found these comments on the web regarding CECE
Ceco Environmental recently reported Q4 06 results on March 22. They posted earnings of 0.09 per diluted share on revenue of 41.5 million. Revenue improved but the lack of earnings growth was a huge problem. In Q2 06 Ceco Environmental had earnings of 0.12 per diluted share on revenues of 31.7 million. This quarter they had almost ten million more in revenue but had three cents less in earnings. The lack of earnings growth and the huge run-up in the share price was a bad combination and the stock price has taken quite a beating in the last week.
Another problem with Ceco Environmental is dilution. In Q1 06 they had 10.91 million diluted shares. This quarter they have 13.17 diluted shares. Since earnings are not increasing the value of existing investor's holdings are declining.
I think Ceco Environmental is going to continue to decline and I would recommend watching the stock from the sidelines. If they can increase earnings in the future and stop diluting so much Ceco may be worth another look.
David
How do account for the sales keep increasing and earning going down?
$31,000 .14
$37,000 .08
$41,000 .09
Quote from: lancefur on March 30, 2007, 10:47:36 AM
It's a good thing I had to wait for my funds to settle until today. I wanted to get this for a few days now. I am glad...picked some up at 11.73 Hope it bounces back and the downgrades aren't too hazardous to this awesome looking stock.
8)
Nice entry price lancefur :)
Quote from: Se7en on March 30, 2007, 06:39:40 PM
David, maybe you should send a mail to that analyst and explain him why he's wrong! ;D
I don't know his name or e-mail, do you? I would like to know the reason why he's estimating $41.85 M in Q1 2007 revenues when just two orders represent $55 M in revenues? The justification can be that revenue from that order will be recognized across several quarters. There's no public information of the contract to check that out.
Quote from: yukiii on April 01, 2007, 03:33:06 PM
David
How do account for the sales keep increasing and earning going down?
$31,000 .14
$37,000 .08
$41,000 .09
Good question yukiii, let's put the relevant information on a table:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35058;image)
- Revenues are rising at a strong pace;
- Income Taxes in Q4 2006 were 71% higher than on the previous two quarters average;
- Net margin was healthy in Q2 2006, at a 4.92%, but declined to 2.83% in Q3 2006. Management attributed this to one large under performing project. Net margin didn't come back higher in Q4 2006 because of higher taxes. If taxes were at the previous quarters levels, Net income would have been $1.58 M, and net margin would then be 3.81%. Basic EPS would be $0.14;
- The share count has remained stable over the past 4 quarters, despite jumping from 2005 levels. But this company doesn't have an history of heavy dilution (just 3.57% average annual pace), as you can see on the historical share count below:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35059;image)
CECE has issues, but I believe the recent drop more than priced in those issues. The future looks better than the past, since the reported numbers don't show the recent big orders or the effect of the Effox acquisition, for example.
Technically the stock hit a support level and made huge volume on what seems to be a reversal candlestick. My current take is that over time the stock will claw back up and make new highs, but we'll keep studying it everyday to access the future potential of this holding.
I'll keep holding CECE.
SEC Filings for CECE > Form 10-K on 2-Apr-2007
http://biz.yahoo.com/e/070402/cece10-k.html (http://biz.yahoo.com/e/070402/cece10-k.html)
Some other news:
EPA wins case on power-plant pollution
Last Update: 5:56 PM ET Apr 2, 2007
WASHINGTON (MarketWatch) -- U.S. utilities are likely to face stricter scrutiny of the pollution emitted by their power plants, following a Supreme Court ruling Monday in favor of the Environmental Protection Agency's new source-review program.
http://www.marketwatch.com/news/story/duke-energy-fails-prevail-power-plant/story.aspx?guid=%7B83A19082%2D39E1%2D4AB1%2DBC2E%2D667FF4A3C260%7D (http://www.marketwatch.com/news/story/duke-energy-fails-prevail-power-plant/story.aspx?guid=%7B83A19082%2D39E1%2D4AB1%2DBC2E%2D667FF4A3C260%7D)
It's very nice to have the 10-K form Se7en, we'll work around it for days to come. As for today (I don't have much time, I have personal businesses to solve this morning), I would like to highlight this part of the 10-K form, for those, like myself, that were somewhat worried about the recurrence of revenues:
«Diversified End Markets and Customer Base. The diversity of our end markets and customer base provides us with multiple growth opportunities. As of December 31, 2006, we had a diversified customer base of more than 2,300 active customers across a range of industries. Our customers represent some of the largest aerospace, automotive, foundry, ethanol, power and metals companies in the U.S. Our blue-chip customer base includes General Electric, General Motors, Procter & Gamble, Nissan, Honda, Boeing, Corning, Toyota, Babcock & Wilcox and Alcoa. In addition, we believe that the diversity of our customers and end markets mitigates our risk of a potential fluctuation or downturn in demand from any individual industry or particular client. We believe we have the resources and capabilities to meet the operating needs of our customers as they upgrade and expand domestically as well as into new international markets. Once systems have been installed and a relationship has been established with the customer, we often win repetitive service and maintenance business as the customers' processes change and modifications or additions to systems become necessary.»
This news:
EPA wins case on power-plant pollution (http://www.marketwatch.com/news/story/duke-energy-fails-prevail-power-plant/story.aspx?guid=%7B83A19082%2D39E1%2D4AB1%2DBC2E%2D667FF4A3C260%7D)
... looks like great news for CECE Se7en, nice finding :)
This is one of the things I like about this holding. The law creates and protects its market, and it will be even more so in the future, as the environment is one of the major worries of modern society. CECE has a lot of room to grow in a worldwide growing industry.
I'll continue holding CECE.
I've studied the first 8 pages of the 10-K form filed yesterday (http://www.sec.gov/Archives/edgar/data/3197/000119312507071909/d10k.htm), and so far, so good (the report has about 100 pages).
It seems they have a foot in China:
«Representative customers include General Electric, General Motors, Procter & Gamble, Nissan, Honda, Toyota, Boeing, Lafarge, Corning, RR Donnelley, and Alcoa. North America is the principal market served. We have, at times, supplied equipment and engineering services in certain overseas markets. We have completed several major contracts in Mexico and are currently executing large projects in China.»
I'll keep studying this extensive report as I keep holding CECE, nice comeback yesterday.
More Orders for CECE!
CECO Environmental Announces Three New Orders Totaling $1.7 Million
Wednesday April 4, 8:15 am ET
New Subsidiary Books $2.9 Million In First Month
Bookings For The First Quarter Total $46.2 Million
NEW YORK, April 4 /PRNewswire-FirstCall/ -- CECO Environmental Corp. (Nasdaq: CECE - News), a leading provider of air pollution control and industrial ventilation systems, announced today that it has received three new orders totaling $1.7 million.
ADVERTISEMENT
Rick Blum, President and Chief Operating Officer, stated, "These three orders come from the aluminum, the acid, and the wastepaper recycling industries. The first project is in Russia, the second in South Africa, and the third in the southeastern United States. They were booked by our Busch International, CECO Filters India, and Kirk & Blum subsidiaries. The order secured by our operation in India is the second largest in its history.
"We are very encouraged with the performance of our newest subsidiary, Effox. In their first month as part of the CECO Environmental family they booked over $2.9 million worth of new business. We are also pleased to report that almost $500,000 of this new business came from other CECO Environmental companies. This is business that was being placed elsewhere prior to the acquisition so it is new business for Effox."
Phillip DeZwirek, Chairman and Chief Executive Officer of CECO, stated, "Our bookings for the first quarter were approximately $46.2 million. First quarter bookings last year were approximately $35.3 million. This represents more than a 30% increase over last year's new order rate."
Thanks for posting the good news Dory99 :)
QuotePhillip DeZwirek, Chairman and Chief Executive Officer of CECO, stated, "Our bookings for the first quarter were approximately $46.2 million. First quarter bookings last year were approximately $35.3 million. This represents more than a 30% increase over last year's new order rate."
So, I see 30% revenue growth, and I was estimating just 25% long term revenue CAGR.
I watched the initial video analysis again and put CECE's fundamentals on my new valuation model. Here are the results:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35208;image)
The four variables of the model are:
1) Dilution factor
I put 1,05, which means an average annual dilution rate of 5%. The historical average has been 3.55%, but now there are convertible debentures outstanding that point to a 5% rate.
2) Revenue CAGR
I put 1,3, which means 30% revenue CAGR. That's what we're getting from yesterday's news, in terms of new bookings when compared to the same period in 2006. But revenue growth in 2007 will probably be more than 30%, due to the big orders the company got in Q1 2007, like those big two orders with a $55 M value, announced on January 3, 2007 (the revenue recognition of these orders will probably be spread throughout several quarters).
3) Final net profit margin estimate
I inserted 5%, and maybe this is optimistic, but as we've seen, without the increase in the tax rate in Q4 2006, the net profit margin for that quarter would have been 3.81%. And in Q2 2006 it was 4.92%. I don't think it is unrealistic to consider 5% net profit margin, especially if we consider the 30% revenue CAGR.
4) EPS multiple estimate
I inserted 35, and the Pollution & Treatment Controls industry average is 43.5 now (http://finance.yahoo.com/q/co?s=cece). It seems reasonable.
Given all this I get a share price CAGR of 49.5%, and an estimated share price of $45.13 by the end of 2009. This means I should only consider selling the stock now if it were trading at $28.9 (the optimal selling price), because, beyond $28.9 without any improvement in the long term fundamental picture the stock would start returning less than 16% on our investment, and therefore should be replaced by a more promising holding.
I'll keep holding CECE.
CECE mentioned on page 5 ...
http://www.thestreet.com/_yahoo/newsanalysis/investing/10348756.html (http://www.thestreet.com/_yahoo/newsanalysis/investing/10348756.html)
And finally, for a microcap with a lot of potential, consider CECO Environmental (CECE - Cramer's Take - Stockpickr - Rating), which makes the most popular brand of air-filtering equipment for all the new ethanol plants being built. It's trading at 14 times earnings and growing at about an 18% clip
Even I am a bit surprised by the way CECE is coming back after that horrible one day sell off. Today I'm going to change my model a bit for CECE, considering, instead of a 5% net profit margin, just 4%, and instead of an earnings multiple of 35, I'll insert the Pollution & Treatment Controls industry average of 44.36 (http://finance.yahoo.com/q/co?s=cece):
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35272;image)
The optimal selling price stayed basically the same, rising just a bit from $28.9 to $29.32. So we can see just 1 percentage point in net profit margin has more or less as much impact as almost a 10 point change in the estimated earnings multiple.
Hmmm, this makes me think about two ways I could improve the new valuation model further:
a) I should know the exact sensitivity of the share price CAGR and optimal selling price to a change in each of the four working variables of the model;
b) I could improve my forecast of the net profit margin, if I estimated gross margin, SG&A costs, R&D costs, interest costs and taxes to derive that net profit margin.
I'll work to make these improvements to the model.
CECE is quite attractive, I'll keep holding the stock.
The Effox acquisition cost was about $7.7 M:
«The Company completed the Asset Purchase on February 28, 2007, pursuant to the terms of the APA, by which Acquisition purchased substantially all of the assets of Effox, including the design, manufacture, and sale of its damper and expansion joint products and the furnishing of installation services to customers and any goodwill associated therewith. Acquisition paid $7,004,960, which is $6,775,000 plus or minus the Estimated Adjustment Amount, as defined in the APA, plus an additional $725,000 which was placed in escrow. Acquistion also agreed to pay a three year earn out payment. The earn out payment is not to exceed $1.0 million and is based on the amount by which annual fiscal year gross profits of the purchased operations of Effox exceed $5,833,333 for the first period of March 1, 2007 through December 31, 2007 and exceed $7.0 million for each of 2008 and 2009 fiscal years.»
And yesterday CECE released financial details of Effox:
Effox financial statements (http://www.sec.gov/Archives/edgar/data/3197/000119312507075392/dex991.htm)
Effox had revenues of $28.6 M and net income of $1,112,464 in 2006, so the PER ratio of Effox is just 6.92. There's a reason why the company was so cheap: there's a lot of debt and Effox's balance sheet is quite weak as you can see above. Anyway, I believe it was a nice acquisition.
I maintain the four estimates I had, with that information the optimal selling price is just $29.32, I'll continue holding CECE.
Believe it or not CECE was up 32% since the low made 6 trading days ago, so the 5% decline yesterday should be considered as "normal market behavior".
CECE will still have to work around current levels, as the technical picture isn't pretty, but I'm positive that sound fundamentals will take it to new all time highs before 2007 closes.
I'll keep holding CECE.
It seems the Italians like CECE, Unicredito Italiano just revealed a 5.2% stake:
Form SC 13G CECO Environment Corp Filed by: Unicredito Italiano SPA (10K) (http://www.sec.gov/Archives/edgar/data/3197/000116055007000071/ceco.txt)
Dow Jones just reported that CECE has filed to sell 3.35 million shares.
Quote from: kenmann on April 11, 2007, 05:41:43 PM
Dow Jones just reported that CECE has filed to sell 3.35 million shares.
Link?
Edit: nevermind, found it!
http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001193125%2D07%2D078970%2Etxt&FilePath=%5C2007%5C04%5C11%5C&CoName=CECO+ENVIRONMENTAL+CORP&FormType=S%2D3&RcvdDate=4%2F11%2F2007&pdf= (http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001193125%2D07%2D078970%2Etxt&FilePath=%5C2007%5C04%5C11%5C&CoName=CECO+ENVIRONMENTAL+CORP&FormType=S%2D3&RcvdDate=4%2F11%2F2007&pdf=)
so we can expect a price drop from here, right?
Looks like they are paying off a substantial portion of their debt. They will repay a 5.9M loan to Green Diamond. It appears that they will use the remainder to repay a portion of a 19.1M debt.
Can someone shed some light on this...
Currently CECE shares are as follows:
Shares Outstanding: 11.50M
Float: 4.52M
Does this mean that the float will now increase to ~ 7.7 mil shares and shares outstanding will increase to 14.2mil? If so, won't the murder the stock price? Or, will they trickle it into the public slowly so that it won't cause a decrease in price?
Guess nobody likes the news on this....down 8% in after hours. Yuck!
Quote from: lancefur on April 11, 2007, 10:24:25 PM
Guess nobody likes the news on this....down 8% in after hours. Yuck!
Consider too that the news hasnt been posted yet on Yahoo...
Correct me if I am worng, but this can't be a bad thing..
Paying down the debt of the company by using some of the built upshare price.
Dave, what is your take on this?
I would think we should back up the truck on a any kind of pullback, wouldn't you agree?
Thanks,
Wx
Quote from: wxmang on April 12, 2007, 12:04:16 AM
Correct me if I am worng, but this can't be a bad thing..
Paying down the debt of the company by using some of the built upshare price.
Dave, what is your take on this?
I would think we should back up the truck on a any kind of pullback, wouldn't you agree?
Thanks,
Wx
The more I think this through... the more it actualy makes a lot of sense. Converting from insider ownership to publicly owned shares will allow institutions and funds to begin buying this stock.
David - we all would really like to know your take on this. We eagerly wait your reply.
Paying off debt can't be bad. I was hoping to get Dave's take on this early. I have to be out all day...
Quote from: JKN on April 12, 2007, 07:03:42 AM
Paying off debt can't be bad. I was hoping to get Dave's take on this early. I have to be out all day...
Just 2 minutes more JKN, it's almost done.
QuoteDave, what is your take on this?
I would think we should back up the truck on a any kind of pullback, wouldn't you agree?
Let me study the news in detail and see how it impacts the long term valuation model. But, whatever the impact is, I never average up or down, as that would disrespect the money management rule of diversifying capital through 15 different holdings to be full invested.
As I've written previously (but not to you, since you're a recent subscriber to 3 SOF Premium), we already need to know what to buy and at what price, we don't need to wonder about how much to buy, that should always be pre-set and shouldn't change on any occasion.
QuoteDavid - we all would really like to know your take on this. We eagerly wait your reply.
Hi dragonamg, I always update the analysis on all holdings of the Main Portfolio (http://www.3stocksonfire.org/3stocksonfire.php) when the market is closed, but sometimes I do it right after the close, other times I do it before the open, it depends. But either way, the market is closed, there's nothing you can do, so relax :)
Let's get to the point now, the news out after the close was:
FORM S-3 CECO Environmental Corp (http://www.sec.gov/Archives/edgar/data/3197/000119312507078970/ds3.htm)
In my model I had 11.5 million as the initial share count and 13.3 million as the final estimated share count, that lead me to dilution factor of 1.05. The 1.8 million difference is what was expected, and corresponds to the following part:
«the expected exercise of the warrants by the selling stockholders to purchase 1,749,500 shares of common stock with a weighted average exercise price of $2.68 per share, which are included in this offering;»
Let's consider the Offering part of the prospectus and include everything the company is excluding from the # of shares outstanding after this offer:
Common stock to be outstanding immediately after this offering(1): 14,256,809 shares
+ 283,000 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $4.51 per share as of April 9, 2007;
+ 750,000 shares of common stock issuable upon the exercise of outstanding warrants (other than the warrants that are expected to be exercised by the selling stockholders and included in this offering) with a weighted average exercise price of $4.98 per share as of April 9, 2007;
+ that the underwriters do not exercise their over-allotment option to purchase up to 502,225 additional shares in the offering from us.
The total number of shares outstanding will be: 14,256,809 + 283,000 + 750,000 + 502,225 = 15,792,034.
So, I need to change the initial share count number in my model, from 11.5, to 15.792034. I'll continue to assume a 1.05 dilution factor going forward:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35489;image)
The stock remains attractive, but a lot less than what it was previously. The share price CAGR estimate declined from 46.8% previously to 33.4% now. The optimal selling price declined from $29.32 to just $21.66 now.
But, as I read more of the risk factors and other information, I get quite worried. The selling stockholders are the insiders:
«Phillip DeZwirek, Jason DeZwirek, Richard Blum, David Blum and Lawrence Blum are the selling stockholders in this offering. Phillip DeZwirek is our Chief Executive Officer and Chairman of the Board; Jason DeZwirek is our Secretary and a member of our Board of Directors; Richard Blum is our President and a member of our Board of Directors; David Blum is our Senior Vice President; and Lawrence J. Blum is Vice President of Kirk & Blum. The selling stockholders are offering an aggregate of 2,348,166 shares of our common stock in this offering. We will not receive any of the proceeds from the shares offered by the selling stockholders.»
Moreover, the proceeds the company will get from the conversion of warrants, will partially be used to pay a company controlled by insiders:
«We will use approximately $5.9 million of the net proceeds from this offering to repay all of our subordinated debt and accrued interest payable to Can-Med Technology, Inc. d/b/a Green Diamond Oil Corp. Green Diamond is an affiliate of Phillip DeZwirek, our Chief Executive Officer and Chairman of the Board, and Jason DeZwirek, our Secretary and a member of our Board of Directors.»
They're also selling their biggest factory and corporate headquarters and still don't know where they're going next, which is weird:
«The relocation of our largest manufacturing and corporate office facility located in Cincinnati, Ohio could result in a negative impact on the Company's financial performance.
We have entered into a purchase agreement for the sale of our largest manufacturing and corporate office facility in Cincinnati, Ohio. The agreement, which may be terminated by the purchaser for any reason prior to July 2, 2007, provides for the 10.7 acres of real estate and improvements to be divided into two parcels, with the closing of the first parcel scheduled to occur on or before July 16, 2007, provided that the purchaser makes a required payment to us by July 2, 2007. The closing of the second parcel would occur on or before the later of March 25, 2008 or 30 days after we have vacated the second parcel, subject to certain conditions. The closing of the sale is subject to customary closing conditions and the negotiation of our rights to occupy both parcels for a period of up to 10 months following the first closing. There is no assurance that the sale will be consummated. We will be required to relocate all of our manufacturing operations and administrative offices that are currently being performed at these facilities. Although we are currently making plans to vacate these facilities, we have not located replacement facilities for our operations. If we are unable to locate replacement facilities and relocate our operations within the required time periods, our manufacturing operations and administrative activities may be disrupted and we may be required to incur additional expenses, which may have an adverse impact on our business and results of operations. In addition, the disruption on our manufacturing operations and administrative activities during the relocation, and additional incurred expenses may also have an adverse impact on our business and results of operations.»
This and other information about seasonality and the risk of lower margins leads me to lower my estimates on other variables of the valuation model:
(http://www.3stocksonfire.org/trading/index.php?action=dlattach;attach=35494;image)
Ouch. Just because I lowered the net profit margin estimate from 4% to 3%, and the EPS multiple estimate from 45 to 20 (45 is the industry average, but with this kind of dilution, I realistically don't see the market pricing it at more than 20 times earnings).
So, with the current estimates the model says CECE will decline 7.5% a year, on average, for the next 3 years, and CECE went from attractive to avoid.
The trading plan is:SELL CECE.So, what went wrong on CECE? As I read this thread again and watch the video analysis, I believe I didn't pay the necessary attention to the balance sheet, which is extremely weak. I failed to see the composition of current assets, which, wow, is 93% composed of receivables and inventories, but especially receivables. This was the clue to know they would dilute shareholder's value, the way they're announcing now, in advance.
I believe the new balance sheet graph, with the composition of current assets and its evolution, will avoid this mistake in the future.
Again, the trading plan for CECE is SELL.
Just got out at $13.65... I only bought yesterday at $14.1, so it's not so bad after all.... It seems that I have an extraordinary talent to pick up 3SOF's holdings that do not perform that great :-(... I do not have enough funds to hold 15 stocks and instead of buying SILC and CIMT.. I went for CECE :-(
I do that too. >:( But with Zecco trading, I can diversify a little bit more since they don't charge commission fee.
Quote from: raspi on April 12, 2007, 11:42:10 AM
Just got out at $13.65... I only bought yesterday at $14.1, so it's not so bad after all.... It seems that I have an extraordinary talent to pick up 3SOF's holdings that do not perform that great :-(... I do not have enough funds to hold 15 stocks and instead of buying SILC and CIMT.. I went for CECE :-(
In that case you should consider the 3 Stocks on Fire Portfolio (http://www.3stocksonfire.org/3stocksonfire_3sof.php) holdings going forward, that's the current and future purpose of that portfolio. I believe you went for CECE because you could buy it lower than the Main, but you should be more suspicious of the losers and more confident about the winners, because trends usually persist. If a stock is above my purchase price, I was probably right, so the stock will continue to appreciate. If it is lower than my buying price, I may be wrong, and the loss will just get bigger.
Anyway, great timing on that sale, much better than mine, I got out around the open at $12.75 (my execution skills are lousy, which means almost always you get a better entry and exit point than the Main Portfolio (http://www.3stocksonfire.org/3stocksonfire.php)).
By the way, currently the most attractive stocks on the Main Portfolio (http://www.3stocksonfire.org/3stocksonfire.php), in this order, are: SILC, CIMT, GIGM, NVTL.
Good luck :)
Your timing was a lot better than mine. But losses are to be expected. I must admit, I do prefer Dave's new approach for looking for long term companies rather than trades. Especially since I always tend to get burned on my entry and exits. I would much rather hold onto a great company and grow with it.
I sold this morning at 12.85. Just got home and cece is almost back to even. Why didn't the market interpret the news as terrible?
i just sold the second half of my holding... I think the news is definitely a bad one and I do not understand todays action... I am however really glad it only cost me few dollars :)
I learned an important lesson here about analyzing the current assets composition as you mentioned David.
I dont remember Mastering Fundamental Analysis saying anything specific about that when looking at the current ratio, but it does make sense that having too many receivables and not enough cash would lead to a need for dilution...
Quote from: soxguy on April 12, 2007, 02:49:13 PM
I sold this morning at 12.85. Just got home and cece is almost back to even. Why didn't the market interpret the news as terrible?
I don't think you should say right away that the market didn't interpret the news as terrible, the market works in strange ways over the short term. Today's climb from the opening lows can be just a "fill the gap" kind of day, but six months from now I believe the stock will be trading below $10.
If I were to sell a big quantity of shares in the open market, I wouldn't sell them right after the news, I would try to establish a trading range where I would be distributing on balance.
That or else I was wrong on my selling call ... time will tell.
CAN YOU CHECK [CFPC] I WOULD LIKE YOUR OPINION
Quote from: stock on April 12, 2007, 03:17:09 PM
CAN YOU CHECK [CFPC] I WOULD LIKE YOUR OPINION
Yes stock, I've noted here so I'll make a video analysis on it. I still have stuff to do tomorrow, but Monday I'm sure I'll start with the 3 per day rate of analysis :)