We have covered a little bit already of why we think this Chinese Supply Chain Management (SCM) software maker is a pretty good buy at these levels. However, we’re not entirely without reservations.
The reservations have to do with how the stock price behaves. We have been following this company for months already, and it seems to be stuck in something of a rot. Why can that be? Let’s go through a list of possible explanations, a game of weighing the evidence and (hopefully) elimination.
1) The Chinese markets have corrected in a pretty comprehensive, indeed, spectacular fashion.
See the graph above, that’s what I call a correction for grown-ups. Funny that economically, there is nothing wrong with the Chinese economy, while there is really a lot going wrong with the American economy, yet their markets cannot manage anything near such a mature correction so far.
So, when the Chinese markets corrected, so did eFuture. It’s graph can be admired below.
You can see that the correction of the Chinese markets has likely been of influence on eFuture.
2) The graph, of course gives a clue of another force working on our little company. It share price sits right underneath it’s 200 day moving average. Where have we seen that before..? A preliminary, but entirely reasonable conclusion is that when the Chinese markets further ‘correct upwards’, eFuture will most likely break it’s 200 day moving average and this can be turn into quite a rally (doubling is not out of the question here).
As a side note, this is exactly the reason why we hurried a little in starting to tell the eFuture story, we didn’t want to miss that boat, which might be imminent. However, this entry would not be complete without some further investigations.
3) Is it shorted? Well, there is short interest, as there are 345K shares short in the latest figures from March 26, it’s even down from the previous report (here you can see the development of the number of shares short). The numbers seem small, but get quite a bit bigger when you realize just how low the number of outstanding shares and the float really are. These are 2.63M and 2.47M respectively, shares short is more than 10% of outstanding shares.
So, shorts have something of a say in the eFuture story, it’s a little surprising. Our first reaction was something like, gee, we really like to know what these guys are smoking, it must be pretty good stuff, as this company really doesn’t seem like something the shorters usually prawl upon. Having given it some thought, the shorters might have made a play against the market, but we’re not entirely happy with this explanation.
However, for now, our answer to the question “what happens next” is “it will likely break it’s 200 day moving average, it might be tomorrow, or we might move sideways for another couple of months, but the fundamentals just seem too good.
We’ll keep digging (especially in the SEC files) to see whether we have any other explanation for it’s stagnant behaviour of the last couple of months.