I recently sold 1/2 my position of CHCG near the latest rally high for a solid 39% gain satisfying my need for locking in profits. Since then CHCG has been subject to a 5 day sell off that hasn’t been the most appealing of sights from looking at the chart. Though as the valuation of this company suggests double digit prices into the near future I’ve been recommending to buy CHCG on dips near support levels. Today price broke through another support level which was a $7/share and trailed to a low of 6.53 which is near the next support level in line. I took this opportunity to re-buy my previously sold 39% gain position and purchased at 6.57. CHCG is currently trading at 6.63. The trend here is still very bullish and i’m forcasting a breakout above $8/share given some time and patience. I still hold my initial position that was purchased on 5/30/06 at 5.63.

Let me quote myself from June 17th on CHCG’s Valuation:
“CHCG is getting more and more out of the small cap category as its growing here ket. I mean this is a company that sells a lot of stuff, they’re expecting $369m in sales for this year alone, and if i recall correctly they were forecasting a billion in sales by 2010. So looking at its current sales and growth in sales $387m doesn’t look very expensive in my eyes, it doesn’t look dirt cheap, but not excessively expensive. Their P/S ratio currently is trading at 1.56x compared to the industry average of .8x. This is based on the last 4 quarters of sales of $247m and current market cap of $379

P/S = Market cap/Sales = 379m/247m = 1.56x sales

Though the more significant ratio we want to look at is the Price to earnings ratio which CHCG is trading below the industry average with a current PE of 19.34 compared to the industries 25x earnings. So CHCG looks inexpensive from this point of view especially given their steady earnings growth with a forward PE of just 11.34. So basically how we look at that forward PE is this, if price to were remain unchanged from todays price, in 1 year from now the PE ratio would be 11.34x. Which would make CHCG.OB a very attractive undervalued stock given that the industry average is 25x. But thats not likely to happen. So we would expect CHCG to rise along with its rise in earnings possibly to maintain its current conservative earnings multiple of 19x. If that were the case over the course of the next year if CHCG were to report its expected .56 eps then hypothetically CHCG should trade near 10.83. If CHCG’s momentum gained quicker which is highly possible in the result of a chart pattern breakout and began to trade at an earnings multiple comparable to the industries 25x then hypothetically price would trade around:

Eps = .56
PE = 25x

.56 x 25 = $14/share.

Of course i won’t be holding this stock for that long but fundamentally this stock looks like its overall trend will continue bullish. Especially when it begins trading on a major american exchange and gains favor from large investors.”

This entry was posted on Monday, June 25th, 2007 at 6:20 pm and is filed under Small Cap Stock Picks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.