ONSM

[David Randolph]

I believe that my trading style can't be defined neither as "investor" or "trader". I like to think of myself as a "speculator"

And a speculator speculates on speculative stories.

The red hot speculative story going on in the market now is web 2.0 and video on the internet. I think the comparison between text content and video content is the same you can make between newspapers and television.

Video content will attract more viewers than text content and naturally placing ads on videos or around them will be worth much more.

Any company working towards video on the internet will have this "future value" embedded in its valuation. Nobody knows what that value is, but I guess it is a lot.

ONSM is a $44 M market cap company, with better financial statements than MAMA, which released this press release last Wednesday:

Onstream Media Upgrades Its Digital Media Services Platform With Advanced Web 2.0 Features, Automation and Video Search Capabilities

«The enhancements enable Onstream Media to easily interface its new Web 2.0 technology with popular applications such as social networks, video classified advertising and video oriented portals. In addition, the automation upgrades will provide "one click" publishing capabilities, allowing the company's DMSP users to instantly publish a video in multiple formats to the Internet. Onstream Media's updated video processing technology will also enable its customers to convert speech within videos to text, which greatly improves the accuracy of video search by users.»

The press release has other interesting paragraphs but this one is enough to ignite the speculative power of "video on the web"

Especially when we're talking about a $44 M market cap company.

Trading Plan:

Buy 6.66% of capital in ONSM, around  the open.

[kpunarc]

I'm sorry to ask this in this thread, but I gotta ask. What is market cap and how do you use it? Hopefully that made sense...

[David Randolph]

I suppose I always need to write: "don't place orders at the pre-market". The way it happened perhaps it was us that created that imbalance at the open. I was forced to buy the stock already up 4% and then watch it tank 15%

Well, we'll have to be somewhat patient now, as the stock deals with short term momentum traders, but of course I remain confident we'll see much higher prices for ONSM, perhaps so high that there isn't much difference between buying at $2.7 or $3.2.

[David Randolph]

I'm sorry to ask this in this thread, but I gotta ask. What is market cap and how do you use it? Hopefully that made sense...

That's an excellent question kpunarc, applaud you for that.

The market cap is the total market value of the company. The combined value of all shares issued and outstanding. You get the market cap by multiplying the current number of outstanding shares by the stock's price.

How to use it?

Well, you always need to know the market cap to trade a stock, it represents the market value of the company. Everything in fundamental analysis relates to the market cap.

For example, $10 M in profits can be great for a $100 M market cap company, but it would probably be awful for a $1 B market cap. Another example, a new product can have a huge impact on a small company, say, a $150 M market cap company, but almost no effect at all on a big cap, like, for example, IBM, which is a $143 B market cap company.

You can find the market cap of any company on financial sites like Yahoo Finance or www.marketwatch.com for example (just be careful with very small caps or OTCBB stocks because sometimes the value can be wrong at those websites).

Again, great question, thanks for asking. If you have any further doubts, don't hesitate to ask

[kpunarc]

you're awesome! thanks!

[tokyopua]

Im on vacation in Japan but couldnt resist checking the market upon waking up.  I love the story on ONSM so just jumped in.  This stock also has the Terliso momentum marks in addition so that is another plus in its favor long term 

[JKN]

Ditto, in at 2.70...

[David Randolph]

It's hard to buy a stock and immediately see it tank as ONSM did, but sometimes it happens to all traders, and of course I'm no exception. But I'm mentally and financially prepared for this, due to the strict money management rules that I follow. 

I can't say that I was expecting this short term development. I believe it was quite unpredictable, the stock could have gone either way over the short term, because some gaps are closed, and some aren't. You never know which ones will be closed and which ones will be left open.

I continue to see ONSM as a $40 M market cap company with about $8 M in revenues entering a very high demand market, the "video on the web".

Here's the way I see the internet world, say a year from now:

- Company's websites will have much more videos than today. The President's message, description of products/services, the guided tour through the factories, etc, will all be done with videos, not pictures and text.
- Most advanced companies will work using the internet even more, making webcastings, web conferences and webinars.

Again, I believe the press release that made the stock gap up 57% last Wednesday will make ONSM be worth $100 M or more in the not so distant future.

The short term looks ugly, but we all know how the short term picture changes quickly. "Video on the web" speculation won't just lay down and die. These small cap companies still have a lot to give, because the dream is worth a lot more than 40 million dollars.

I'll hang on through the turbulence and patiently wait for the stock to push higher again, probably to $5 or $6, it wouldn't insult anybody. I've seen a lot worse trading at $200 or $300 M, like many biotechs outthere, companies that never sold a single dollar. Yes, they have the dream, but so does ONSM, so it may also be valued at $200 or $300 M, can't it?

I'll continue holding ONSM.

[basonista]

To better understand some of the intraday fluctuations in price, I try to look at some of the things shorter term traders are looking at.  I am certainly no day trader but it helps to learn some of the tools of other methods of trading for better understanding and to try to enhance your own skills.  Looking at this move in ONSM, we can see that drawing a fib retracement from the low of the 20th to the opening range low of the 21st gave a pretty good projection of where the price would peak on the 21st.  On the 22nd, support was temporarily found on the 38.2% retracement level, falling to the 50% level on the 26th and the 61.8% level today.  ONSM may continue down to close it's gap but normally a stock that maintains it's bullishness will find support by at least the 61.8% fib level if the other levels fail to hold up price.  Risk/reward is good here with a stop below today's low of $2.51.  I'm in at $2.65.

[cdrankwalter]

AS BORAT WOULD  SAY " I LIKE", IM IN AN 2.65, I ALL READY OWN SOFO, WHICH IS SIMILAR BUT IT SEEMS LIKE THIS MEDIA COMPANIES ARE ALL WAY UNDERVALUED

[realcoolhead]

Unlike many experienced traders around here, I don't have knowledge nor time to reanalyze David's picks. I re-subscribed for the purpose of simply following 3SOF's portfolio. I am wondering if I am at the right place? I asked this question because recent picks (HAUP, ONSM, MAMA) look "scary" comparing to other profitable companies and they seem to entertain day-traders a lot. Am I seeing a strategy shift again, or these stocks are still ok for people like me who desire relatively longer holding time?

[David Randolph]

Unlike many experienced traders around here, I don't have knowledge nor time to reanalyze David's picks.

You don't have to. I always give crystal clear buying and selling instructions when the market is closed and never change the initial plan.

I re-subscribed for the purpose of simply following 3SOF's portfolio. I am wondering if I am at the right place?

Of course you are, why not?

I asked this question because recent picks (HAUP, ONSM, MAMA) look "scary" comparing to other profitable companies and they seem to entertain day-traders a lot.

HAUP is different from ONSM and MAMA. HAUP has fundamental value now, ONSM and MAMA are more of a speculation. I think you're upset, not because of day traders, but because those two stocks are down, respectively, 16.6% and 6% from my (your) entry point.

Am I seeing a strategy shift again, or these stocks are still ok for people like me who desire relatively longer holding time?

I certainly won't day trade them or advise anyone to do it. There's no strategy shift at all. These two plays, because they are such small companies, are more risky, but they also have a lot of potential (despite being in the red now).

Do I feel good about picking these stocks? No, I feel I deviated some from my strategy for picking stocks and went over board with this video thing. Don't expect more picks just "full of air", I guess investing is winning over speculating.

Now, concerning ONSM, the stock is coming down and most people think it will close the gap. I don't think it will. Sometime down the road the stock will rally and the way it rallies will tell me if I should continue holding it for a nice profit or get out with a small loss.

For now I'll keep holding the stock, I see the selling pressure abating and honestly feel the "video on the web" speculation still has a lot to give to this $38.5 M market cap company.

[JKN]

To me, as long as the fundamentals back up the SP behavior, then the trades aren't so 'scary'.  Looking at the daily chart, the SP has dropped considerably but on decreasing volume.  This is classic bullish behavior.  I took an initial position at 2.70 more as a defensive move to capture a rally.  I really wanted it back around 2.50-2.55 (see basonista's excellent fib analysis) but I felt like this would rally given the SP drop on decreasing volume.  It also seems that the lower the SP of a stock, the more susceptible it is to large % moves. 

The trader in me says sell now and take my quick 10% but I'll follow 3SOF and ride the storm.  I missed GIGM doing exactly this by waiting until I hit my perfect 'buy point' and lost a potential 500% gain.  I missed it at 2.40 and it went well over $10.

PS.  I disagree with David that the gap won't fill, they almost always do.  The time frame is what counts, it could be months from now and, if so, we'll be long gone from this stock.  If it does fill soon and the fundamentals are still strong, I'll likely reenter.  I'll sell if it drops below about $2.50.

[David Randolph]

I think it is time to look at this ONSM pick in a more serious way. I feel like a small kid (in market terms) when I read my initial recommendation on the stock. The market is presenting the bill and I have to decide if I'm going to pay it right now or risk to pay a higher tuition fee in the future.

Let me restart this thread and apply my usual analysis template to ONSM:

1. Profile

Founded in 1993, Onstream Media Corporation (Nasdaq: ONSM) is a leading online service provider of live and on-demand, digital media communications and applications. Onstream Media's pioneering Digital Media Services Platform (DMSP) provides its customers with the necessary tools for webcasting, web conferencing and webinars as well as managing digital assets, publishing content on the Internet in various files and formats and establishing e- commerce storefronts to transact business online.

All of Onstream Media's services are focused on increasing productivity and revenues, and reducing capital expenditures and operational costs for any organization in an affordable and highly secure environment. As a result, 78% of the Fortune 100 CEOs and CFOs and almost half of the Fortune 1000 companies have used Onstream Media's services. Select Onstream Media customers include: AOL, AAA, AXA Equitable Life Insurance Company, Disney, Discovery Education, MGM, Deutsche Bank, Rodale, Inc., Thomson Financial/CCBN, PR Newswire and the U.S. Government. For more information, visit Onstream Media at www.onstreammedia.com or call 954-917-6655.

2. Technical Analysis
2.1. All History Chart



No doubt there was a lot of dilution on ONSM. The stock was a speculators' dream in 1999. Volume on December 21st was by far the highest in the company's history.

2.2. Medium Term Chart



The current bull phase is the biggest since the stock collapsed after 2000. Curiously enough, ONSM had never been "pumped and dumped" in a meaningful way since 2001. So, if this is a "pump and dump", at least it is a fresh new one, not many bagholders holding the stock. I like what I see over the medium term chart.

2.3. Short Term Chart



With a dispassionate look at this short term chart I have to say it is extremely bullish. All moving averages show an ascending trend and volume is very strong in historical terms. Most people that bought the stock on December 21st continue to hold it. Today's white candle might be telling a short term bottom was made at $2.50 and the stock will push higher towards $4 now.

Let's make some fundamental tests to see if they are supportive to the technical picture.

3. Fundamental Analysis
3.1. Number of Shares Outstanding



There's no way to hide it, extreme dilution over the years on ONSM, especially in 2006, especially now:

• Onstream Gets $2.2M From Share Purchases
AP (Thu 5:02pm)

The graph above is already updated with these recent share conversions by warrants and note holders. The current share count stands at about 19.4 million, so the market cap is 19.4 million*$2.74 = $53 M.

I don't think these conversions are unexpected at all. Also the historical # shares outstanding graph is what we could expect from a losing money company like ONSM. Let's move on.

3.2. Liquidity



I had ($3.57 M) in working capital in the latest balance sheet, but with today's news of $5.3 M capital infusion, working capital is now a positive $1.57 M. Still quite low.

3.3. Revenues



There's a light at the end of the tunnel on this revenue chart. Full fiscal 2006 revenues will probably be the highest in the company's history, at almost $9M.

The revenue multiple is $53 M/ $9 M = 5.88. The Business Software & Services industry average revenue multiple is 2.05.

I see three consecutive quarters of revenue growth in 2006. Also, believe it or not, Q3 was the best quarter of the last 16 quarters in revenue terms.

Is this a fundamental shift to higher revenues and possibly profits? Maybe.

3.4. Net Income



Never had a profitable year. This company only survived because there's a stock market.

3.6. Recent News

• Onstream Media Upgrades Its Digital Media Services Platform With Advanced Web 2.0 Features, Automation and Video Search Capabilities
PR Newswire (Wed, Dec 20)

• Onstream Media Corporation Receives $2.2 Million From Common Stock Warrants and Options Exercise
PR Newswire (Thu 1:58pm)

4. General Overview

I had to read the first press release again (I've read it several times). The second press release shows nothing new or unexpected, although probably the stock will go down some due to that press release.

Considering the past, it is almost impossible to sustain a bullish view on ONSM. I'm a bit encouraged by the recent tick up in revenues, though. What matters here is the future. Let's highlight a few remarks of the December 20th press release:

«In addition, the automation upgrades will provide "one click" publishing capabilities, allowing the company's DMSP users to instantly publish a video in multiple formats to the Internet.»

"one click"? "instantly"? Currently I need two softwares and to upload the video to Google Video or youtube to publish a video. It takes what, 20 minutes to make a 2 minute video I wonder if what they say is true, if it is, it can be a great technology.

«"With the ever-increasing amount of digital information being created and shared through multiple mediums, more and more companies are utilizing Onstream Media's video search, indexing, encoding and ad insertion capabilities to more effectively monetize their content and increase viewer stickiness," said Randy Selman, president and chief executive officer of Onstream Media. "We continue to anticipate market and company needs and provide our clients with the most efficient Digital Media Services Platform to host, manage, distribute and monetize video over the Internet."»

Yes, what puzzles me here is they talk about "their clients". Well, their clients are just a few, they need a lot more. If it was I that had the kind of software they talk about (if it's true), I would just sell that software to the public and make a lot more money than selling services to Fortune 500 companies. They're just 500. There are 7 billion people in the world

Overall, I believe "video on the internet" will be huge going forward. This is a $53 M company operating on the right space. The upside potential is enormous, even with its financial problems.

I need to allow for more risk on this position. If the stock goes to $2.13 to close the gap I'll be losing about 32% on this position. To always respect the 2% money management rule I can never lose more than 30% in one single trade.

If "video on the web" is so important, ONSM can't go down to close that gap, because that would erase all the effect of the video news. I agree with basonista and JKN, this stock should rise immediately, it shouldn't be able to close, say, below $2.45.

After all these thoughts and analysis you see how difficult my position is. I deviated from my method and the stock isn't fundamentally strong, far from that. I'm kind of lost in this play ... so I'll let the market decide.

The trading plan is:

HOLD ONSM, unless it is set to close below $2.45. If that is about to happen, cut the losses near the close.

[realcoolhead]

David, thank you for giving me such a detailed response.

What I am concerned is that you have perhaps mixed too much of FA play, TA play or speculative play. Take ONSM for example, if you truely believe ONSM has huge potential, then why do you care whether it will close below $2.45 or not tomorrow? And if it is more a TA play and $2.45 has such a technical importance, then you probably should have been more patient in setting the entry price to have better risk/reward potential.

I am not sure if I have explained myself well. But what I sensed was that your picks on ONSM and MAMA sounded a bit rush as if you had to get into them right away. You abandoned the usual style of FA/TA analysis and simply labelled them as speculative stories.

I might have applied higher standard on you but please understand there are people seriously following you. As long as you do your stock recommendations in a consistant way, I can take temporary setbacks as they are unavoidable. The way I see it for making money in the long run: the downside of each stock is only -100%, but the upside of each stock can be 1000% or more!

Again I want to add that 3SOF is the most honest stock-picking site that I have even seen. You are doing a serious and excellent job. Even though I feel that you are more or less still in the process of refining your new trading/investing strategy, I will follow you through all the ups and downs, because based on what I have seen here, I believe you have a very good shot being truely successful!

HAUP is different from ONSM and MAMA. HAUP has fundamental value now, ONSM and MAMA are more of a speculation. I think you're upset, not because of day traders, but because those two stocks are down, respectively, 16.6% and 6% from my (your) entry point.