For reference, here is the rationale described in a preview of Cyberplex Q2 results:
Google foreshadows Cyberplex. Google results beat published analyst forecasts for Q2, showing some sequential growth in revenue and earnings. During the depths of the recession, marketing managers were increasingly seeking performance-based advertising in the form of Cost-per-Click programs (Google's primary revenue engine). Cost-per-action (CPA) based advertising is even more performance based than CPC, which could bode well for Cyberplex performance, especially as some mainstream accounts begin to take notice and sign on.Google exceeded expectations at both the topline and the bottom line, reporting $5.84 in adjusted earnings versus consensus expectations of $5.38. This is a very healthy beat. Since cash continues to be king, investors should be amazed that free cash flow increased by 40% over last year. Also, Google share price should trade higher today on the news after trading up by 3% in the aftermarket yesterday.
Online advertising is beginning to recover. However, the demand for measureability and performance by marketing managers has probably permanently shifted. The online display ad business will not recover at the rates of CPC-based advertising, which plays directly into Google's dominance. With more measureability associated with Cost Per Action (CPA) advertising, we should see Cyberplex continue to at least mirror Google performance as its market niche matures.
The CX.TO stock has traded off its highs over the past month due to some overhang caused by an early angel investor exiting the stock and taking profits. The investor is now essentially gone, leaving the share price trading between $1.20 and $1.30 a share. As at the end of Q2, the company reported $0.33 of cash and short-term deposits, and also generated $0.05 in free cash flow during the quarter. During H1 2009 alone, CX generated $0.10 per share in free cash from operations. Right now CX is trading at 4x cash.
The bottom line: If patterns continue, there is a good probability that Cyberplex could beat analysts forecasts for Q3 2009 based on Google's performance yesterday. On top of that, due to the recent stock overhang, the Cyberplex stock has traded down substantially over the past month. Instead of trading at the multiples of a high growth company churning out strong cashflow, the stock is trading at multiples similar to an industrial stock. The TTM P/E ratio is 6.0x right now. The next two weeks may represent a pretty good time to get into the stock.
Disclosure: I own shares of CX