Mark Holder manages Covestor’s Opportunistic Arbitrage Long Only portfolio, which focuses on small- and mid-cap companies that appear fundamentally strong and operate in industries with attractive macroeconomic trends. Mark recently added a new position in ChinaCache International Holdings Ltd. (CCIH) to this portfolio and we took the opportunity to ask Mark about his investment thesis. Mark pointed us to his article on Seeking Alpha, and here are some highlights:
Well, after that massive IPO jump and follow through, the stock has plunged. Investors are fleeing this once high flyer just 3 months after its [mid-November] peak. The combination of a weak China equities market in January and the resignation of the COO on February 10th has been too much for investors to risk. …
Another bullish point is that the Q3 earnings report and the first as a public company reported strong growth and it guided to better then expected numbers in Q4. Q4 revenue is expected to grow… and it appears to finally be turning the corner on margins. Sure the COO resigning so shortly after an IPO appears concerning, but with him remaining as a special advisor and only being the 3rd in charge, the sell-off appears grossly overdone…
Could the COO departure signal problems under the surface? Possibly, but the market seems irrational. The CEO and CFO aren’t leaving, plus the numbers since the IPO were strong and CCIH had no mention of a disappointment in relation to his departure. The CDN market appears in high growth considering the recent deal announcements and this significant drop smacks of a great buying opportunity. Naturally earnings on March 7th will be key but the risk sure seemed a lot higher when the stock traded above $30 than it appears now.
CCIH chart from Google Finance:
Here’s recent performance of the Covestor Opportunistic Arbitrage Long Only Model:
Sources:
“Buy This Once Hot China IPO After the Sell-Off” Stone Fox Capital. Seeking Alpha, 2/24/11. https://seekingalpha.com/article/254785-buy-this-once-hot-china-ipo-after-the-sell-off
“ChinaCache International Holdings Ltd. Announces Third Quarter 2010 Financial Results” Company press release, 11/4/10 http://ir.chinacache.com/releasedetail.cfm?releaseid=527361
