Small cap power: CIMT

[buddjas1]

First day of true profit taking.  I think I will just turn the ticker off today. 

[David Randolph]

First day of true profit taking.  I think I will just turn the ticker off today. 

Yep, probably that's the right attitude. CIMT is touching a support area, prior resistance. Unfortunately stocks don't go straight up.  Fundamentals didn't change, just weak hands leaving the ship, over time CIMT will be at new highs.

[tokyopua]

First day of true profit taking.  I think I will just turn the ticker off today. 

Yep, probably that's the right attitude. CIMT is touching a support area, prior resistance. Unfortunately stocks don't go straight up.  Fundamentals didn't change, just weak hands leaving the ship, over time CIMT will be at new highs.

I added more shares at 3.60, wanted to round out my position and figure since it has the highest CAGR number now, its still a great buy

[kpunarc]

How are the technicals (or situation) of this different from CPNE's?

[tokyopua]

How are the technicals (or situation) of this different from CPNE's?

CPNE is an internet sales company that had a high churn rate with markets mainly in the US.  CIMT sells software, mainly Computer Assisted Design in fast growing markets outside the US like China.  It is an Israeli company.  I have held both stocks and believe CIMT is much more the "real deal" than CPNE was.  Just my 2 cents.

Hoping for CIMT to hammer today with a close above $4, might be too much to ask but would be a nice bullish sign 

[David Randolph]

How are the technicals (or situation) of this different from CPNE's?

There are so many differences I wouldn't know where to start, I don't know why do you even ask the question. I guess the main difference is CIMT has a sustainable business model that has been in place for several years and CPNE.OB, especially www.onlinesupplier.com, is based on a service with a 60% monthly costumer churn rate and therefore is unsustainable over the medium term.

Another difference could be that today CIMT is a $30 M market cap software company and CPNE.OB is a $101 M market cap, so, more than 3 times larger.

There are many, many differences between both businesses (Tokyopua also named a few), and I expect the share price evolution over the long term to also be different.

[Garoh]

A good chance to buy this thing at these levels .....

This stock gave a clear buying sign today when it touched 3.56 

I have move confidence in this stock now more that ever 
as well as it's additional fuel for this rocket to shoot to new highs ..

[wxmang]

I must admit, I was a tad nervous when CIMT traded down 14% early in the trading session.
What a roaring comeback! The Ask is 3.97 right now!
Very exciting and I agree; Very Bullish Move!

[raspi]

The problem I have with both CIMT and SILC is that they are really thinly trading stocks... even for 3 SOF community. 5k buy order just moved CIMT up $0.15..
If there is an unexpected negative news and David changes his opinion and gives a sell signal it will dramatically fall within minutes.
I good example was CECE few days back.. Drop happened in the morning on low volume and CECE recovered and has been trading in $13.4-$14 range since that day...

P.S. I bought some CIMT today around support as I missed the first run... 

[David Randolph]

I must admit, I was a tad nervous when CIMT traded down 14% early in the trading session.
What a roaring comeback! The Ask is 3.97 right now!
Very exciting and I agree; Very Bullish Move!

Hi wxmang

You need to be calm to profit over the long term, and not let yourself get excited with intraday movements. Look for excitement someplace else, not the stock market, because emotions can take away your money.

I look not to be happy when my stocks rise, so I don't have to be sad when they go down. It's all business as usual, nothing will ever surprise me in the stock market, not after what I've been through my 11 year trading career.

Of course, I'm also learning to be more calm towards stocks and investments in general. For example, in CIMT, I bought it at $2.90 and saw it go down 18% right after I bought it. At the current $3.79 price I'm winning 30.7%, after being with a 62% profit two days ago, since the stock is down 19.7% from its high.

All this short term movement is irrelevant to the long term result of this investment, because only changes in the fundamentals can change my expectation of selling this stock above $18

[David Randolph]

The problem I have with both CIMT and SILC is that they are really thinly trading stocks... even for 3 SOF community. 5k buy order just moved CIMT up $0.15..
If there is an unexpected negative news and David changes his opinion and gives a sell signal it will dramatically fall within minutes.
I good example was CECE few days back.. Drop happened in the morning on low volume and CECE recovered and has been trading in $13.4-$14 range since that day...

P.S. I bought some CIMT today around support as I missed the first run... 

Yes, there are risks, but the profit potential clearly outweighs the risks in my opinion. If the stocks moves a lot volume will rise, no doubt about it. What do you call a dramatic fall, 10, 20%? That's not a lot, not if it happens way above our entry point

I wonder, why didn't you buy when I first recommended CIMT? The stock even went down a good 10-20% after I recommended it.

I'm glad that CIMT is giving you and others, by being down today, the confidence to buy the stock.

Let's just hope the fundamental trends that I foresee (I believe I'm not being particularly agressive on CIMT, just 20% revenue CAGR expected) truly unfold. I have no reason to suspect that won't happen.

Gee, I'm writing too much about CIMT today, over the intraday (and I don't appreciate writing when the market is open, I prefer to think with a cool head when the market is closed and I can't do anything anyway).

[wxmang]

Hi David,

I know what you mean about emotions...
Alot of folks lose alot of money due to their emotions.
Looks like a few CIMT shareholders were getting "emotional" today
I wouldn't be surprised if CIMT roars back above 4 by the end of the week.

Thanks David for all your hard work and educating us
I can't tell you how much I appreciate your daily updates.
It's like having a financial advisor sitting right next to me everyday

[raspi]

I wonder, why didn't you buy when I first recommended CIMT? The stock even went down a good 10-20% after I recommended it.

I did not buy because of low volume and because I was busy accumulating XING  (it paid of today.. I think CECT IPO is a great news). But seeing how great you are doing  I decided to follow your picks more closely and I just rebought JASO. Yesterday I put a sale order AH at 28.5 and it was filled.

[BigSully1]

Interesting that today is the first really bearish candlestick pattern for CIMT since the first big breakout.  Can CIMT beat the Bearish Cloud Cover near term?  Who cares, like David says, this one is a buy and hold!  

Yes, a bit of a bearish candlestick, but volume was so low that I don't think it has much technical significance. Anyway, as you rightly wrote, fundamental trends say CIMT is worth $17.75 today (of course, if those trends continue, but that must be the natural assumption - that will be confirmed or not by the actual results), so I'll keep on holding CIMT.

Tokyopua, I'm still learning technical analysis so correct me if I'm wrong, my book says for a dark cloud cover to occur, the second (black) day had to close below the midpoint of the previous days white body which would be below $4.23. It says there are no exceptions  to the pattern. Still there is no denying it was a bearish candle and almost a dark cloud cover. Lets see what happens.

Given the volume and the fact it didnt close within 50% of the real body it probably doesnt have much bearish signifigance.  However, with this pattern (as with many candlestick patterns), Steve Nison suggests that it can be open to interpretation:

"The first day of this two-candle pattern is a strong white real body.  The second day's price opens above the prior session's high (that is, above the top of the upper shadow).  However, by the end of the second day's session, the market closes deeply within the prior day's white body.  The greater the degree of penetration into the white real body, the more likely this is a top.  Some Japanese technicians require more than a 50-percent penetration of the black session's close into the white real body.  If the black candle does not close below the halfway point of the white candlestick, it may be best to wait for more bearish confirmation following the dark cloud-cover.  In some circumstances I will also view it as a dark-cloud cover even if the open is over the prior session's close instead of the prior session's high."

I consider Nison to be the authority on candlesticks, so I go by his interpretations.  He has two scenarios where he will still call it dark cloud cover where others might not, but in my experience this flexibility has saved me some money by looking at the overall picture.  

So this is a dark cloud cover per his definition (you could his two variations Weak Dark Cloud Cover and Didn't-Open-Above-Prior-High Dark Cloud Cover, lol), but per his guidelines not one that you would necessarily act on or expect to follow through bearishly.  

Also, as David added, the low volume reduces the signifigance further.
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Tokyopua, looks like the dark cloud cover (or almost) did have ST bearish implications. Is there a 5 day day bearish candlestick pattern (the cloud cover day + next 3 rising short white days + next long red day in the chart? It looks to me like it would be a bearish pattern though I can't find any in the book. Just trying to learn. Thanks.

[David Randolph]

CIMT has been trading within an ascending channel and today it touched the lower band of that ascending channel. It also found support between $3.5 and $3.6, because that was a previous area of resistance, now support.

My valuation model says the following:



The model says CIMT will be a $29.19 stock in 2009, and given that expectation, it should only be sold at $18.70 today.

Are there risks to these estimates and expectation? Of course there are, there's always uncertainty in the stock market, but I believe my estimates are reasonable, here's why:

1) Dilution factor of 1.

CIMT has more or less the same number of shares outstanding since it became a publicly traded company in 1996. Management didn't dilute shareholder's value when the company was losing money and needed it, why would management dilute now that the company has a strong balance sheet and is profitable? No way.

2) Revenue CAGR of 1.2

Just 20% revenue CAGR between now and 2009 is nothing special for a company making a strong bet in China and other emerging markets. CIMT grew 80% in China in 2006 and is expanding in that fast growing and now huge economy:

«Cimatron's subsidiary in China achieved 80% revenue growth in 2006. The Chinese market is the fastest growing target market for Cimatron, and we continue to invest and expand our operation in this strategic market.»

• Cimatron Opens Two New Offices in China to Meet Growing Demand
PR Newswire (Tue, Mar 27)

3) Net profit margin of 15%

Net profit margin was already 9.24% in Q4 2006. We've previously studied how CIMT's costs were extremely contained over the last few years, which means a good part of any revenue growth will go directly to the bottom line. I believe that CIMT, being a software company will easily meet or exceed a net profit margin of 15%.

4) EPS multiple of 41

Well, this is the Technical & System Software industry average EPS multiple, I don't see why CIMT shouldn't be valued at the average in 2009, if all other estimates are met.

So, I'll keep holding CIMT with strong hands. I believe it can be interesting, for someone curious and with time and patience for it, to read this thread from page 1, to see how other similar corrections unfolded and our feelings and thoughts at the time.