3SOF

Hmmm... Even I was a bit nervous holding over earnings this time. CKCM's earnings visibility is not as good as KOMG, STX or VPHM.

Now earnings are out and it was worth the wait 

I haven't had time to go through the figures but from a quick glance it looks even better than I hoped.

Mike

CKCM reported their earnings for 2005 last week and I think that it was even better than most of us expected. At least they posted results that was much better than my estimates when I started this thread.

Revenue grew with 153% in 2005 and net profit was up with 210%

Here is the development in revenue and Net profit:





You would expect that a company that shows this kind of growth and is beating earnings estimates would soar but you are wrong. Actually the stock went down on the earnings:



This is what I like to call the short's last stand. CKCM has been on the naked short list for 84 days. The poor short community obviously has great difficulties. Most of the short positions are from October and November and they are hopelessly under water.

42% of CKCM's float is short. A huge mistake, which the shorts are the first one to realize. They have tried to cover slowly during the last couple of month only to see the stock continue up with every attempt:



So what to do. Well a clever short try to fabricate a good story. Here are the stories that I have heard:

• No organic growth
• Days Sales outstanding too long
• Account receivables increasing

So let us have a look at how much meat there are on the short's bone:

CKCM actually had 8% organic growth. Not that this is so important as they continue to make acquisitions that adds to earnings. With the latest orders signed the organic growth should however accelerate.

Day Sales outstanding fell from 93 to 84 days a significant improvement, which is a result of better collection and the integration of the acquired businesses.

Accounts receivable increased from the end of the third quarter by $8.9 million to $25.3 million. This is however very well explained in the earnings release:

Accounts receivable increased due to increased revenue in the fourth quarter, the acquisition of Requisite on November 22, 2005 and the calendar year-based renewal of many of the Company's customers maintenance contracts, the revenue of which is all deferred. As of December 31, 2005, approximately $6.6 million of incremental accounts receivable related to 2006 maintenance renewals

I would like to point out the deferred income as this also relates to the Days Sales Outstanding. When a client signs a long term contract for services it is booked as deferred income as the customer will first pay later. Now the higher this figure is the better for the company. I would love to see deffered income of 10 or 20 millions as this is like having money in the bank.

The short hopeless case has become so obvious that even Forbes who otherwise have been a bit skeptical about RFID (even though their guru's seems to  love CKCM) found the situation interesting: Pulling Click Commerce From Weak Hands http://www.forbes.com/newsletter/2006/02/22/click-commerce-kimmel-in_jd_0223gurusow_inl.html

I happens to toltally agree with Forbes and believe that there is a lot of money to be made by betting against the short community in this case.

Mike

Michael - I do also like your case for CKCM on a fundamental side, and have watched the last 2 runs from the sidelines (why, I don't know ).  I currently see 2 potentially contradicting formations on the chart at the moment.  The first is the longer term rising wedge, which CKCM is at the base of right now.  A move to test the top of the wedge would put it around $32.  The other is a H&S that has formed over the last 2 months.  Currently the share price is sitting on the neckline, which also corresponds to longer term ascending support.  If it breakss down from here, it will be doubly bearish, breaking the rising wedge as well, and then the shorts will definitely be in control, and could easily take it back down to around $20.   The difficlty with having such a large short interest in a stock is that sometimes the shorts are right technically, despite the fundamentals of the company.

I still see this as a good play, but would like to see some more psoitive movement off support before getting in.   Probably a different picture if you are already long term invested though 

Hi Scotsman,

You are of course right that it could go to 20 short-term even though the trend seems to be up. I wouldn't really pay to much attention to any short-term technical moves (that is unless I wanted to add to my position!)

At a PPS of 20 the PE would be 12.3. This for a fast growing company (220% last year and Michael Ferro confirmed that the company expects to continue earnings growth next year in the CC).

I am very confident that a couple of months from now we are a lot closer to 32 than 20. In fact I wouldn't be surprised if we are well above 32.

We will see but I think it can and will be a lot better even though we might go through some hardship until the shorts finally capitulates.

Mike

UPS - I forgot to mention that CKCM was added to IBD's list over The Fastest-Growing, Top-Rated Companies this weekend:

9. Click Commerce (CKCM) - IBD Stock Checkup
One of many leaders in IBD's Computer Software-Enterprise group, the company has a whopping 3-year EPS growth rate of 277%. More.

I guess that shouldn't hurt the share price 

Mike

you are quite right - fundamentally, this simply doesn't make sense, but for me it is about trying to identify a good position to get in - if the bottom of the ascending wedge does provide support, here would be a very good entry, however, if it breaks down in the short term, I'd much rather be in around $20.

I am very impressed with your confidence and willingness to sit tight - too many times I have sold out (for a loss) when I think things look bearish, or even for more arbtrary reasons associated with seeing the pps drop below where I am happy with, of course only to bounce back - without me grrr!!!

The interesting thing about CKCM is that it has been getting many new contracts. Examples are the Air Force contract that CKCM got with Oracle. The contract was initially delayed because SAP protested the award. SAP's protest has been denied. CKCM got a new contract with American Airlines and most recently with Sager Electronics.

CKCM's CEO Mr. Ferro was asked about the Xelus acquisition on the conference call. The Xelus part of CKCM provided most of the software product that was used in the Air Force and American Airlines deals. Mr. Ferro basically said that it was a mistake to single out Xelus as being the most successful part of CKCM because other parts of CKCM are doing as well or in some cases better. He said that the Xelus part was just apartent to the market because those were deals that CKCM could announce. The other deals could not be announced because either the customer didn't want it or could not be announced yet for other reasons he didn't specify.

Given American Airlines and the Air Force deals are large, just how large are the other contracts that Mr. Ferro alluded to?

I have expected at some point CKCM to begin getting the much larger contracts to manage supply chains or to do the RFID for customers. Perhaps those are the type of contracts CKCM has gotten or is in the process of getting?

One thing is very sure, CKCM is an interesting stock.

I am on the sidelines on CKCM for now - I think things look quite dangerous at the moment.  CKCM has broken below its ascending trendline, suggesting it is not valid as support, though it nearly touched support at $24.  Right now the H&S formation looks to be in play, and I would only play it if it closed above the H&S neckline.  The last 2 days have ended up being dojis, which suggests indecision in the market, but may also act as a bottom.  We need clear confirmation of this to reflect fundamentals.  If it breaks $24, a move down towards $21 may occur.  CKCM's share price has not properly reflected its fundamentals before, and there may be other pressures on the stock that we are not aware of.  I still think a solid break above $26 would make CKCM look a lot safer.

I just noticed the updated short numbers on yahoo.  As of Feb 10 2006, 3.99M shares short up from 3.46M in January.  So additional 500,000 shares short in one month.  Short percentage 48% of float!

How much longer can this short pressure last?

The Volume eems to be dropping considerably. This indicates that we are at a point where we could soon turn up. Also stochs are heavily oversold. May see two more days of downward pressure then the slow turn round.

I think CKCM could be a buy here - price has been under downward pressure and on Friday encountered strong support around 22.50 and bounced off these levels, giving its first nice little white candle in a bit, and closing up about 2% for the day.

The H&S top formation since the beginning of 2006 has morphed into a falling wedge, which looks set to break to the upside, and the long term log chart shows the price has come back down to long term ascending support.

I think a buy here would probably represent a reasonable risk/reward.  A close below 22.50 would represent a reasonable stop as it would suggest a move to next support @ 21 (which would definitely be a good buy point).  The long term chart is still bullish and an (imperfect - see ascending triangles thread) ascending triangle has been building on the long term chart   Weekly RSI is just below 50 (49.987), which may point to a rebound. On the short term chart, volume has been declining on this selling and the daily RSI just ticked up.  A positive move here could be good to test resistance around $28 at lest, which ain't a bad gain.  And if CKCM looks set to break out of this long term triangle, Michael's Fundamental targets could also be in play.

Well I liked todays action and although volume was light, a couple of positive days action suggests that the selling has dried up.  RSI has turned upwards, MACD is flattening and the MACD Histo is getting closer to zero (on the negative side).  Also Stochastics are oversold and the Stoch just crossed over its signal line.

So, I jumped in on a small dip today at 23.46.  I think this represents a pretty good risk/reward entry, and because I've been mucking around with high volatility stocks attempting to short term trade them (and losing my shirt in the process), I'm gonna go for a few plays that I think make good fundamental sense and have charts in turnaround and hang on to them for a while, possibly a few months.  CKCM definitely fits that bill.  Having read over the last several posts also reminds me that this is a good trade because I actually thought it out in advance, anticipating the pullback to attractive levels.  It didn't make my target of $21, but I am quite happy with this entry.  Too often I just see a stock I want and buy it because its moving, and end up getting a very precarious position, far away from support levels (which sometimes works out, but recently its been burning me bad).  Much better to have a think, make your plan and then when the timing is right, take your position.

Now as for targets, I see a first target at 26.75 (once it has broken out of the wedge and through resistance at $24.  But I would rather look for second resistance at 28.40, and above that highs around $31... but not committing myself to a particular exit for now...  the sky's the limit right?

Anyway, just a little pat on the back for myself   Now I really hope I got this one right....

3 green days and pushing against resistance at $23.88-89.  break of descending wedge and all indicators look good for this reversal, just need to break through this resistance level to confirm the move, hopefully tomorrow.  Volume still light, but I expect if it breaks through this resistance, we should see volume pick up.

Hi Michael, Scot,

I initially bought CKCM per Michael's rec at around 19 during Sep of last year.  I sold it as it dropped to 16, and then bought it back at 18.  I like the company and will stick with it.

I have very little experience with shorting so my question is this:  Aren't shorts mostly short term traders?  Doesn't this mean that they short the stock, watch it drop, cover and take their gain?  Or are there long term shorts?  When a company is doing wel, how could such a large short position hold up? 

short update from end of Februaury:
CKCM: Short Interest UP 15.2% to 4.0M in Feb 2006
Monday , February 27, 2006 16:18 ET

According to new short interest data from NASDAQ, short interest for Click Commerce Incorporated (NasdaqNM: CKCM) INCREASED 15.2% to 3,990,280 shares for the month ended mid-February, 2006.

SYMBOL    JANUARY        FEBRUARY          CHANGE       %CHANGE      DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
CKCM           3,463,834       3,990,280        +526,446       +15.20%           7

Based on CKCM's 20-day average daily share volume of 639,195, it would require approximately 7 day(s) of buying to cover this short interest.