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Acorn International (ATV) is a good buy at this pullback for long run.

|Includes:Acorn International, Inc. (ATV)
I bought ATV without getting chance to write a recommendation and saw it moves up nicely with big dividend. Then I thought it was too late to write a recommendation. Now it pulled back from its high at $7.20 without breaking any uptrend and close to its support. It is a good time for me to suggest a buy now. (NOTE: I’m not promoting this stock because I’m holding it and it went down. I usually recommend a stock on the day I bought.)
When I’m writing this article, the price of ATV went down to $6.2, what an attractive price here!!!
ATV is a company having $5.67 per share in cash (Cash/ Price ratio at 91% based on the current price), positive $0.45 Diluted EPS (ttm). It has no debt.

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1. There’s enough Real Cash on hand. i.e. Real Cash Price ratio >30% or >50%.
YES - It has $5.67 cash per share. Cash/Price ratio is at 91% based on the current price at $6.2 (Feb 26, 2010 7:30AM PST).
MyMinter Real Cash value is $6.1 per share with the Real Cash Price Ratio is at 98%.

2. Debt should be less than 30% of Real Cash.
Yes - It has no debt

3. The company’s Operating Cash Flow is positive.

We have no data for operating cash flow from our system. We used operating income instead. Operating income of the last quarter is $3M, it is a positive $0.1 per share.

4. There’s no short or little shorts. Shorts may know something we don’t know and that’s why they bravely short, we should respect them in certain level. We alos should aware that shorts may sell shares to push the price down on purpose, in order to have their short positions profitable.

Short % of Float (as of 29-Jan-10)   is only at 17K.  Almost 0%

5. The company should have profit to maintain or improve the current valuation. The earnings per share should be positive.

The company turn into profit from May 2009 at $0.088 EPS and then $0.03 on Nov 2009. NOTE: It paid a big dividend $0.97 on Dec 2009.

6. The company should have growth. The revenue growth should be positive and better than previous quarter or year over year. It’d better if they have same healthy growth on earnings.

The company turn into profit from May 2009 at $0.088 EPS and then $0.03 on Nov 2009. NOTE: It paid a big dividend $0.97 on Dec 2009.

7. The company should have nice profit margin. This is one of the factors to see Durable Competitive Advantage.
The profit margin is not very high at only 4.34% (Profit Margin (ttm)). It means the company is in a high competitive industry, it has low competitive advantage or its management cost is high.
8. The company should have nice Quarterly Revenue Growth (yoy) and nice Quarterly Earnings Growth (yoy).
The company’s Quarterly Revenue Growth (yoy) is at 21.3%. There’s no data for Quarterly Earnings Growth, but EPS on Dec 2008 was negative -$0.109 and Nov 2009 was positive $0.03.

9. The reading of daily, weekly and monthly charts should be healthy. i.e. all above certain moving average. The extreme oversold with huge volume (i.e. >70% of total outstanding shares) in one day can be treated as a good purchase opportunity after research carefully for the reasons.   

The daily chart shows a pullback. The support is at $6.2 (That’s why we suggest it today) and $5.8 (we don’t think it will go to this low). Weekly charts reading are bullish and above all support lines.

10. The company should have good daily volume with narrow bid/ask gap to maintain liquidity.

Its volume is healthy. NOTE:  The down today did not come with heavy volume. It means it is a pullback instead of a change of trend or leaving of an institution.

11. Don’t buy a company that had a move-up above 50% without enough congestion or a healthy pullback in the past few days or weeks.

The stock moved up from $5.2 to $7.2. Now it is experiencing a pullback, but this pullback builds a good opportunity to buy.

12. The company has strong competitive advantage in the industry

Based on my knowledge I did not know any stronger competitor in the niche where the company is playing.

The stock is a safe buy at the current price $6.2 and it may at most go down to $5.8 with a < 10% loss. Its comeback after the drop caused by the big dividend payment showed strong bravery and confidence of buyers. The company is a play in China, the value of its earnings will be favoured in the following quarters as the exchange rate of the currency in China moves up based on the forecast (Yuan Gains Most in One Year on Signs Flexibility to Increase). The short term price target is at $10 and the long term is at $20 or even more than $30.

Disclosure: Hold long position on ATV
Stocks: ATV