Small cap power: CIMT

[yukiii]

Looks like a good buying opp today picked some up today  and more tomorrow.
Buy $2.50 -$2.80

[Se7en]

Cimatron's board of directors approved yesterday evening the exercise of Cimatron's previously disclosed first call option to acquire an additional 23.5% of the shares of Microsystem Srl, the company's Italian distributor, and accordingly, to increase Cimatron's holding in Microsystem from 27.5% to 51%. One year after the exercise of this option, which is expected to occur in June 2007, Cimatron will be entitled to exercise its second call option to acquire the remaining 49% of Microsystem's share capital.


David, how much will it cost  CIMT to purchase 23,5% of the shares or even 23,5% + 49% or how does these first call options work?
I assume they have the funds to do it but will their financial situation still be 'healthy' after doing this? I mean, can we expect some dilution so they can raise some cash or am I completely wrong here? 

Also, did you listen to the CC David? Was there anything new, maybe some forward guidance or something about some new possible contracts?
Tia!

[David Randolph]

Question: Is it really disregard long term investing if you have the knowledge most stocks fall after earnings release and you act on it by securing gains and re-invest basically right away?

Might be interesting to do some research on this, average % of fall after earnings release with long term interesting stocks? I'll see if I can find some time for that this week.

I don't think that most stocks fall after the earnings release, but that would be a great research work Amarens, but it would require an immense work. Perhaps you should sample 100 stocks, study them on an historical basis and then extrapolate the results to the whole market. Gee, I should be the one doing this, not you, but I will hardly have time to do it, at least over the next couple of weeks. Tell me how you're thinking of organizing this, perhaps we could split some tasks. Thanks Amarens

David, how much will it cost  CIMT to purchase 23,5% of the shares or even 23,5% + 49% or how does these first call options work?

The 23.5% of Microsystem (their Italian distributor) will cost Cimatron $600,000. CIMT currently has $7.489 M in cash and equivalents and will use it to make this acquisition. The company has a call to buy the remaining 49% of Microsystem for $1.1 M.

I assume they have the funds to do it but will their financial situation still be 'healthy' after doing this? I mean, can we expect some dilution so they can raise some cash or am I completely wrong here?

Zero dilution, but I guess many market participants saw yesterday's news as "dilution coming". They don't know CIMT's history of zero dilution.

Also, did you listen to the CC David? Was there anything new, maybe some forward guidance or something about some new possible contracts?

Yes, I listened to the CC. Here are my highlights:

- This was the first ever conference call from the company;
- Cimatron 8.0 version allows the company to enter a whole new market, the Die design market. The company expects growing revenues from this new market over the next few quarters. Management expects organic growth;
- The first 27.5% of Microsystem, which were bought in 2005, cost € 575,000. The 23.5% they'll buy in June 2007 will cost $600,000. And they have a call to buy the remaining 49% for $1.1 M in June 2008;
- Microsystem had $10.5 M in revenues in 2006 and it was profitable (they didn't disclose by how much). CIMT expects Microsystem to remain profitable in 2007 and beyond and the acquisition will be accretive to earnings starting in Q3 2007;
- In terms of geographical sales, CIMT sells 57% in Europe, 23% in the Asia Pacific, 12% in North America and 8% in the rest of the world;
- The CFO specifically said: "if you go back and study our financial reports, you'll see that seasonality always affects the 1st quarter results" (like we did), but "we expect strong revenue growth from the recently launched Cimatron 8 version, because we'll enter brand new markets";
- To the question: "Are you going to use more of your cash to fund other M&A oppotunities?" the answer was "we're always studying strategic alternatives to enhance shareholder's value, and yes, expect more M&A in the future".

I already had this conviction, but after listening to the conference call I'm more reassured that CIMT is an outstanding long term investment. People taking the stock down 23% yesterday don't have a clue, it only happened due to technical reasons, low liquidity and lack of institutional following.

I'll continue holding CIMT for the long term.

[elliemae]

good discussion of CIMT earnings results on yahoo MB
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=tm&bn=3664&tid=390&mid=390&tof=1&frt=2

[David Randolph]

Yes elliemae, the points on that Yahoo post make sense, perhaps Q1 revenue declined because they were about to launch Cimatron E version 8.0 and businesses didn't want to buy the prior version.

People sold CIMT in a rage yesterday, but in my view that was because they made a superficial fundamental analysis:

- They saw a year on year revenue and net income decline (negligible decline), and a stock price 141% above the year ago levels;
- They saw potential dilution coming from an acquisition, disregarding the fact that CIMT never diluted shareholder's value and has a strong balance sheet. Moreover the acquisition will cost just $600 K.

Yes, CIMT stock price is much higher now than what it was a year ago, but that's because the future looks much brighter now and it is much more secure. The company has new products to sell, it won't spend so much on R&D, it is time to execute, sell the product and reap the reward.

Today's candle was a doji and perhaps it indicates recovery is about to start. I'll continue holding CIMT for the long term.

[Garoh]

Yes David we'll see a nice more for this stock as well as they volume today is above the daily averge ..

Yesterday I added 50% more to my long term position at 2.66 I think this is the worst news for this stock and the next will be the best 

[Amarens]

I don't think that most stocks fall after the earnings release, but that would be a great research work Amarens, but it would require an immense work. Perhaps you should sample 100 stocks, study them on an historical basis and then extrapolate the results to the whole market. Gee, I should be the one doing this, not you, but I will hardly have time to do it, at least over the next couple of weeks. Tell me how you're thinking of organizing this, perhaps we could split some tasks. Thanks Amarens

Hi David,

I don't know if such an immense work. I guess it is if you do it the way you suggest, which would give it a wider base. I was thinking about the stocks we're holding on the main, most with the intention for longer term. So stocks with a positive outlook. You have the intention of holding but why go through a big fall if you could have secured profits and get back in lower and continue the ride.

Looking back at the last 4 to 6 earning relases. I did a quick one on GIGM yesterday, based on closes.

February 2007 releases:   on the day fall of 7,4%,
                                          high of the day not higher than day before,
                                          next day no fall
November 2006 releases: on the day fall of 5,6%,
                                          high of the day higher than day before,
                                          next day slight rise (3,7%)
August 2006 releases:      on the day fall of 2,5%,
                                          high of the day higher than day before,
                                          next day further fall (10%)
May 2006 releases:           on the day 5,6% rise
                                          high of the day higher than day before,
                                          next day even.

So based on this past it would be wise to get out the day before (being day before yesrday) and get back in yesterday or today. If 3SOF would have done that it there would not have been a 10% loss in one day. It does not make GIGM a bad share, it's just securing maximum profit  .

Doing it this way does mean some work but not immense. I think it gives enough information to make a desicion and I think it could have given us bigger gains on may picks in the past. What do you think?

I hope to find some time in the weekend to do this at least for the current holding. Won't help for these earning releases but may be for the next and to start some discussion. Just imagine if every member does one stocks we'll have this knowledge on 10.000 stocks...

Amarens

[terainvestment]

Hi Amarens,

I find interesting your findings about GIGM trading action before and after the earning release.
I would be available to analyze a certain number of stocks, as you say it would be great if the community of 3SOF created groups of work and share the results each other.

A.

[DragonAMG]

I thought and still strongly believe this selloff was unwarranted, but I must admit I am a bit perplexed as to why it did not regain some ground.  I expected the stock to trade right back to the low $3.00 range... obviously that is not the case and it's hanging out $2.70 range on very low volume.

David - what are your thoughts?  Do you expect this stock to rise back to the $3 range anytime soon or in your opinion will we bewaiting awhile? 

I increased my position considerably ~ $2.55 and while I don't want it to drop, if it does would you suggest buying even more at lower levels for a better cost average?  Do you cost average?

[yukiii]

Dragon, why would  you think it should recover to $3.00 right away, it will need some news or a good next earnings report for it to go back up. It will go up when they come thru with sales. Next earnings comes out in august.

Sales along with profits should start to rise in this quarter and revenues and profits will get a further boost in Q3 when Microsystem Srl financial information is consolidated.

Support is $2.50

[stocky]

If they rent/open two more offices in China then the stock may open next day above 3.5. Though I agree that stock has not bottomed yet. Have to get atleast 20 of us start putting market order at the same time. Once its above 3 then the momo crowd will be on the bandwagon.

[labatts6254]

I thought and still strongly believe this selloff was unwarranted, but I must admit I am a bit perplexed as to why it did not regain some ground.  I expected the stock to trade right back to the low $3.00 range... obviously that is not the case and it's hanging out $2.70 range on very low volume.

David - what are your thoughts?  Do you expect this stock to rise back to the $3 range anytime soon or in your opinion will we bewaiting awhile? 

I increased my position considerably ~ $2.55 and while I don't want it to drop, if it does would you suggest buying even more at lower levels for a better cost average?  Do you cost average?

Good news in a press release should start a nice rebound for us; look for it to bounce around 2.50 - 2.75 in the meantime.  Their showcase at BlechExpo may spike some interest; it is being held between June 13th through 16th.  Plenty of opportunity for a run-up before the next earnings release.

Cheers,

[David Randolph]

Doing it this way does mean some work but not immense. I think it gives enough information to make a desicion and I think it could have given us bigger gains on may picks in the past. What do you think?

Hi Amarens, I think the past is not indicative of the future. Recently people have tended to focus on the negative aspects of the results, but as the bull in the general market continues, that will probably change. People now see the glass as half empty, because they're still somewhat pessimistic. In the future I expect them to see the glass as half full and focus on the positive aspects of results, because, most results are a mix bag, they come with positive and negative information, investors decide which factors they give more weight according to their collective pessimism/optimism at the time.

Hi Amarens,

I find interesting your findings about GIGM trading action before and after the earning release.
I would be available to analyze a certain number of stocks, as you say it would be great if the community of 3SOF created groups of work and share the results each other.

A.

That's a good idea terainvestment. We would need a large collection of data to make the study valid, or it could be misleading. It would be nice if we could collect 5 years or more of data (covering bull and bear markets), but that's really hard to do. I'll think about a way of organizing this, thanks for your availability.

I thought and still strongly believe this selloff was unwarranted, but I must admit I am a bit perplexed as to why it did not regain some ground.  I expected the stock to trade right back to the low $3.00 range... obviously that is not the case and it's hanging out $2.70 range on very low volume.

As I look at the Yahoo board, it seems that almost nobody listened to the conference call (no mention of it), therefore everybody is focused on the Q1 2007 results, which were bad. I believe insiders should kick in and buy 10,000 shares or so to prevent the stock price from eroding more without a long term fundamental justification. I'm going to write an e-mail to the company making this suggestion.

David - what are your thoughts?  Do you expect this stock to rise back to the $3 range anytime soon or in your opinion will we bewaiting awhile?

I remain very confident about the long term outlook (this quarter wasn't exactly a surprise for me, since I knew about seasonality), but I'm not sure about the short term. I would expect the stock to react to the $2.5 short term support and start moving back up to close the gap, but I'm not sure how misinformed investors will react over the short term.

I increased my position considerably ~ $2.55 and while I don't want it to drop, if it does would you suggest buying even more at lower levels for a better cost average?  Do you cost average?

Due to my money management rules I never cost average, up or down. There's always the possibility of being wrong, and I like to manage risk by keeping the portfolio well diversified. If an holding starts losing weight in the portfolio I'm not going to increase it, and if it starts gaining weight I'm not going to reduce it either.

So, my advice is for you not to exceed a pre-determined percentage of your total equity in one single stock (unless that happens because the stock rises a lot), that would be too risky.

Dragon, why would  you think it should recover to $3.00 right away, it will need some news or a good next earnings report for it to go back up. It will go up when they come thru with sales. Next earnings comes out in august.

Sales along with profits should start to rise in this quarter and revenues and profits will get a further boost in Q3 when Microsystem Srl financial information is consolidated.

Support is $2.50

I agree.

If they rent/open two more offices in China then the stock may open next day above 3.5. Though I agree that stock has not bottomed yet. Have to get atleast 20 of us start putting market order at the same time. Once its above 3 then the momo crowd will be on the bandwagon.

Hi stocky I don't know if a repetition of that press release would have the desired effect. That "Cimatron Opens Two New Offices in China to Meet Growing Demand" press release seems to have been somewhat misleading, since there wasn't any revenue growth from the year ago levels and they did not mention China in the Q1 earnings release, not even at the conference call. Unless, since the opening of the two offices was in March 27th, that will only be reflected in Q2 results. Could be.

I think the thing that could provide a nice boost and support was if insiders kick in and buy some shares ... that would be super!

Good news in a press release should start a nice rebound for us; look for it to bounce around 2.50 - 2.75 in the meantime.  Their showcase at BlechExpo may spike some interest; it is being held between June 13th through 16th.  Plenty of opportunity for a run-up before the next earnings release.

Cheers,

Yes, that may spark some interest. In the meantime someone at Yahoo posted an interesting link about CIMT's operations in Italy:

Cimatron operations in Italy

Ok, there are two things I need to do right away:

1) Write a post at the Yahoo message board with the conference call highlights and CIMT's story;
2) Write corporate insiders and suggest them to buy some shares in the open market and file a form 4 with the SEC.

Fundamentally nothing has changed, I'll keep holding CIMT.

[David Randolph]

Wrote the Yahoo post:

Conference call highlights

And sent an e-mail to Corporate Insiders:

Subject: From a Cimatron Investor

«Good morning, I'm David Randolph and a long term investor in CIMT's shares at the Nasdaq. I wrote a post at the Yahoo message board trying to educate people on your story:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_C/threadview?m=tm&bn=3664&tid=404&mid=404&tof=1&frt=2

But I'm afraid that won't be enough to prevent misinformed investors from exclusively focusing on Q1 results and take the stock much lower than current levels. Would you consider giving a sign to the market, by buying 10,000 shares in the open market (a slim investment at the current price) and filing a form 4 with the SEC?

I don't want to take more time away from you, continuation of an excellent work,
David Randolph
www.3stocksonfire.org»

I've done what I could do to prevent the stock from sliding over the short term. Of course, over the long term only fundamentals matter, and I remain confident on those.

[Amarens]

Doing it this way does mean some work but not immense. I think it gives enough information to make a desicion and I think it could have given us bigger gains on may picks in the past. What do you think?

Hi Amarens, I think the past is not indicative of the future. Recently people have tended to focus on the negative aspects of the results, but as the bull in the general market continues, that will probably change. People now see the glass as half empty, because they're still somewhat pessimistic. In the future I expect them to see the glass as half full and focus on the positive aspects of results, because, most results are a mix bag, they come with positive and negative information, investors decide which factors they give more weight according to their collective pessimism/optimism at the time.

Hi Amarens,

I find interesting your findings about GIGM trading action before and after the earning release.
I would be available to analyze a certain number of stocks, as you say it would be great if the community of 3SOF created groups of work and share the results each other.

A.

That's a good idea terainvestment. We would need a large collection of data to make the study valid, or it could be misleading. It would be nice if we could collect 5 years or more of data (covering bull and bear markets), but that's really hard to do. I'll think about a way of organizing this, thanks for your availability.

David, I agree the past is no guarantee for the future, but I do think it gives us valuable information and I also think it adds value to 3SOF.

I'm sure more are willing to pitch in like terainvestment (thanks b.t.w.  ) I'm in!

How can we make a list of interesting stocks? And what information do we want? I think app. 50-100 stocks to start with. Open, close, high, low day before release (maybe two), day of realease and day after release (or two), percentage of change and this for 3-5 years. What do you think?

Amarens