Is PacificNet (PACT) a buy?

Jun.21.05 | About: Pacificnet Inc (PACT-OLD)

In his Dow Theory Project Blog, Mike Johnson outlines what he sees as a pattern in the timing of news released by PacificNet (ticker: PACT). Below is Mike's post in its entirety (permission granted). You can visit his blog here.


Mike Johnson writes:

*Disclaimer:  I own shares in PACT and will trade in and
out of these shares based on my own price points.  It should go without
saying, but here it goes anyway - I receive nothing from PacificNet or
any other company for mentioning them here at my Blog, or in the Dow
Theory Barometer.  The gain I stand to make is if I am right in my
stock position - Same as all of you.

Today, I am highlighting one stock, PacificNet (ticker: PACT ),
from the Barometer Portfolio because I have found an interesting news
anomaly that might lead to out sized gains similar to those of our best
portfolio performer, Dynamic Materials (ticker: BOOM)

Three Dates to Know about PACT.

July 11, 2002
http://www.pacificnet.com/pact/webportal/W14/A25.html

July 8, 2003
http://www.pacificnet.com/pact/webportal/W14/A39.html
and

November 17, 2004
http://www.pacificnet.com/pact/webportal/W14/A1012.html

Pact_6
These three dates are etched in the memory of all PACT investors
because they are the three dates that spiked the stock 80% intra-day in
2002, and to substantial gains of more than 300% gains in 2003 and 2004.

These three days in PACT history have one item in common - PACT
announced deals with SONY. The news was either for finishing a deal
(Realization of large chunk of Income) or Signing a new agreement
(Future large chunk of income coming).

The important thing to note is the completion dates for the SONY projects fell within one calendar month. JULY.

Further, they fell with the 3 calendar days of each other the 8th and the 11th.  SONY is a longtime customer of PACT's

This
is nine months since the announcement of the SONY agreement in November
2004. I think we can expect a SONY announcement coming within the next
30 days regarding the progress on the integration of the CRM and
e-commerce project.

Past my work on when PACT might see some fast upward trading action,
I am bringing the light to this company because they are both
Technically and Fundamentally ready for the big time.  On June 24, they
are becoming an original member of the new Russell Micro-cap Index as well as already being a member of the NAI China Small Cap Index

Fundamentally, they have two consecutive quarters of stellar growth, well above the CANSLIM
guidelines on Current earnings and Annual earnings, as well as
institutional sponsorship increasing from 2% to 7% in the last 18
months.  More importantly, Q2 Revenue and Income growth is expected to
be 40-50% and over 1000% respectively on a YOY comparison per the
company estimates.
With 250 million Chinese moving from the farms to the cities over the
next decade, PacificNet is well established with Large-Cap companies to
take advantage of the growing strain on CRM services needed to service
the 250 million new residents taking part in the new China
entrepreneurship.

Technically the stock is in various positive conditions, depending on the time-frame one prefers.  Pact_cup_handle_4 Long-term the stock has made a four-year cup and is currently in the eighth month of its handle.
During the handle the company messed up their Q1 10k filing twice.  (I
think Mr. Tong, the CEO of PacificNet has learned his lesson about
American investors expectations in the new Sarbanes-Oxley era)  Each
time PacificNet missed the 10k date the stock has found strong support
between $6.70 and $7.50 a share.  The Handle portion of the formation
is broad and covers a $7 range.  This is not ideal. I believe the Bad
10k filing and the fast run-up from around $3 to $14, after the
announced Sony deal, are playing their part.  However, the long term
chart is compelling, as this company has remade itself into a leading
CRM player in China.

Pact1_6
From an interest point of view, PACT has begun to show up on the radar
in the last eight months to the investing public.  View the volume
increase since their earnings have begun to improve quarter over
quarter and YOY.  Further, note the higher highs and higher lows of the
last three years. 

The Investor relations at PacificNet is top notch.  You can get a
good company packet from Jacob Lakhany by sending him an e-mail @ ir@pacificnet.com

I placed PACT in my Barometer Portfolio back in February and it is
up 22% in the four months.  I am highlighting it today for two reasons.

  • Technically, I think the chart is in a strong position for upside returns.
  • Fundamentally, the companies earnings, which were raised in Q1, are
    ramping up rather strong and will accelerate over the next four
    quarters.  The company backed their full year earnings in Q1, so they
    are able to see out a good three quarters.  I just don't know that many
    companies who have vision for the next nine months.  This tells me that
    they are a company that will possibly beat expectations.

Those of you who follow the Dow Theory Barometer know
that I have not had positive things to say about the US equities market
over the last two years, and to date the Dow is within about
one-hundred points of where it was when I began commenting on the
markets.  Here is the point, the markets may break out over the next
days, weeks, or months depending on Oil.  If it eases, look for a 5% -
10% rally on the Dow with PACT exploding to the upside out of its Cup
and handle.

The risk reward on PACT is a good one. Well above 3/1.
I would exit PACT below $7 a share, and would look for a challenge of
last years highs near $14 sometime this year if they continue to hit
their growth estimates and file their 10K's properly.

Happy Trading, and mind your stops!

Mike Johnson