Friday, December 19, 2008

Ready to buy FMCN?

Are you ready to buy FMCN?
Mr. Robert Hsu just wrote to his China Profit Strategy to sell FMCN. According to Mr. Hsu's performance in 2008 it could be time to invest in this company.
Let's analyze first this latest masterpiece Mr. Hsu just provided us.
Once more, Mr. Hsu was able to turn a 365% gain into a 35% loss (in the very best case). Here's how.
Mr. Hsu suggested to buy FMCN on November 15th 2005 at $13.95.
In October 2007 FMCN was up 360%, 15 times more than the S&P500, that was up only 22%.
As you see in the chart there has been a long up-trend (blue line) going on for almost 2 years.
Any investor should have set a stop at around $45 (the little circle in the chart). The trend ended, the support was broken and the savvy investor closed his position with a 200% gain ($14 to $45 circa).
Mr. Hsu didn't close anything.

Mr. Hsu was writing between October and November 2007:

  • October 4th 2007: Focus Media (NASDAQ: FMCN) delivered another stellar second quarter. Net income soared 126% to $37.7 million, or 32 cents a share, from $16.7 million in the same period a year ago, while revenue also surged 126% to $113.3 million from $50.1 last year. All three lines of its business were very strong: digital out-of-home advertising revenue jumped 64% to $76.9 million, mobile handset advertising revenue grew 254% to $10.9 million and Internet advertising revenue from its recent acquisition of Allyes was $25.2 million.
    Looking ahead, the company expects its third quarter revenue to be $132 million to $135 million and net income to be between $52 million and $54 million, or 41 cents to 43 cents per share. It also raised its revenue guidance for 2007 to a range of $440 million to $450 million, up significantly from its previous estimate of $390 million to $400 million.
    During the conference call, Focus Media confirmed that it bought iResearch Consulting Group, a top and professional market researcher in China, for $10 million. iResearch will be under independent operation in the future. The acquisition will enable Focus Media to be well informed of website information and the surfing habits of Internet users in China. I believe the deal will help Focus Media to better see the innovation trends of China's booming Internet industry and develop its market-winning strategy to continue to drive its strong growth.
    Lastly, Focus Media announced that it received a letter from NASDAQ Listing Qualifications stating that the company had regained compliance requirements for continued listing on The NASDAQ Global Market. This was the last step to clearing up some of the filing issues that the company has had, and is a buying signal for us. Buy FMCN under $60.
  • November 1st 2007: Focus Media (NASDAQ: FMCN) plans to sell 13.7 million American Depositary Shares (ADS) to raise an estimated $872 million. The company will offer 5 million shares to finance acquisitions and general corporate expenses, while existing shareholders will sell 8.7 million shares. This means an increased ability to expand for the company and is a long term positive for our holding. Buy FMCN under $60.
  • November 8th 2007: Focus Media (NASDAQ: FMCN) sold 13.7 million American Depositary Shares at $64.75 per share in its secondary offering yesterday. The advertising company has raised about $324 million so far, making it ready for another major acquisition.
    Focus Media is scheduled to report third-quarter earnings on November 19, after the market closes. I expect the company to report triple-digit revenue growth once again. Watch FMCN and buy it on dips under $60.
  • November 29th 2007: Focus Media (NASDAQ: FMCN) delivered another terrific third quarter last week. Net income jumped 73% year-over-year and 24% quarter-over-quarter to $46.6 million or 37 cents. Meanwhile, total revenues climbed an impressive 150% from a year ago and 34% from the second quarter to $151.4 million.
    All three parts of the company's businesses reported strong growth during the quarter. Digital out-of-home advertising revenue increased 66% to $94.7 million, mobile handset advertising revenue grew a staggering 299% from last year to $14.0 million, and Internet advertising revenue increased 69% to $42.5 million.
    Looking ahead, the management team expects fourth-quarter earnings to be $62 million–$64 million or 48 cents–50 cents per ADS on revenue of $160 million–$170 million. I believe the company is well-positioned to capitalize on the strong demand growth in China's advertising market in 2008. Continue to buy FMCN under $60.

After watching FMCN going down for 1 year (red line in chart is a beautiful down-trend) Mr. Hsu decided that it is time to sell it:

We first invested in Focus Media (NASDAQ: FMCN) back in November 2005. At that time, the company had recently gone public, and was growing rapidly by installing advertising screens in buildings, shopping malls and supermarkets across China. In all my visits to China, I've always been thoroughly impressed with the company's advertising screens and the reactions they received from people.
Unfortunately, in the past year, the company has fallen on hard times, as the financial crisis and global economic slowdown pulled down companies' shares across the board. In addition, Focus Media is suffering from competitors who mimic Focus Media's video billboard strategy, as well as the fact that advertising budgets have been cut across the globe.
In light of these recent developments, I think it is now time to sell Focus Media. The stock has recently rallied 30% off its lows, and I think we should use this rally to sell our shares. Sell FMCN.

The close price yesterday was $9.20 and the loss for Mr. Hsu is 34%.

Mr. Hsu provided another lesson about how to turn a 360% gain ($14 to $65) into a 34% loss.

A final word about those subscribers that followed him on November 2007 and bought FMCN at $60.

They lost 84%!!!

What's next

Currently FMCN is positioned as follow among its industry peers:

Best 40% as P/E

Best 20% as ROA and ROI

Best 20% as Quick and Current Ratio

Best 20% as OM, EBITDA and Profit Margin

Best 20% as Sales Growth

Add the fact that Mr. Hsu is selling and it may really be the right time to buy...

UPDATE November 19th, market close

As I said... yesterday Mr. Hsu was saying "Sell FMCN" and today FMCN gained over 19%... what a genius!!!


JC said...

Thank you once again for this site.

If anything it is has given me more confidence as an investor in trusting my own instincts.

I would have most definitely taken SOME of my position of the table to lock in the gains at those levels. To not to so and ride your profits into losses is just well, stupid.

You have a big profit you take it or at least take part of it for security.

But the "experts" know best: ride it back down to single digits! What a joke.

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