SWEB earnings Wednesday at 3pm

Stockgroup Information Systems Inc., SWEB, was very good to me earlier in the year. I have followed this company for many years and held some shares in the dregs of the portfolio to make sure I would keep an eye on it. It remains the only penny stock company I have ever seen that said they were going to do a share buyback at .35 and actually did it!! Who knew there is some honesty down at those price levels? The real action began in January with the announcement of an acquisition, the release of new product and the coming improvement of the old. If you are interested you can look at the news on their web site here for more info.

As word of the increase in the potential of the company spread a nice run from .40 to $1.45 happened earlier in the year. Q1 was reported in May, the first partial quarter after the acquisition and there were some disappointments as the company struggles to manage its new growth. Many of these issues were addressed via press releases issued since the last conference call. This being the case, we can see in the chart it is expressed with a trading range as investors await the next earnings announcement Wednesday at 3pm and conference call after the close. This is a weekly view... the runup followed by the range as we wait to see if the company is going to get to the next level.



I would never make an assumption about what will happen on this call, but if the company shows all is on track and they are catching up with their own growth a bit better, some new hires in the last Q should have helped with this, then the stock is extremely undervalued at $1.03 with a market cap of just over $40 million on what will be $15-$18 million in sales for 2007. Priced at 3-4 times 2007 sales the company should be trading $1.30-$1.70, if the market starts pricing in 2008 with further visibility given from the earnings call, the range expands higher. Similar companies have been bought out for 7x's sales in the past so there is plenty of room for valuation expansion if the market so desires. These are only thoughts though and price is king, we can only use the chart to manage actions upon the stock, so what I am saying is if all goes well and the stock breaks out there is a trade here that could take the stock up near $2. The chart shows buy points breaking resistance at $1.30 and/or $1.45 with volume. Multi-year resistance kicks in from 2000 at $1.50, $2.10 and $2.81 respectively. Of these $1.50 can be considered a buy point if it is broken while $2.10 (or really the round number of $2 as it approaches) can be considered a short/intermediate term sell target. A quick move toward the $1.70 2007 valuation band also presents a possible short term target depending on how it gets there.

With the announcement of solid results, this is an easy trade to take. I will post on the numbers when they come out and the conference call after the close. The company could easily show they have no idea what they are doing and don't know how to reach the goals they have set.... but the point is to be prepared! Now we are prepared to take advantage of this situation if it develops.

Full Disclosure: I own many shares of this company and will hold everything I have into the earnings release. If you decide to buy before or after the release the decision risk is all yours!! I fully understand holding shares into this release can CRUSH my positon... do you?