Dow Jones 12354.35 +5.60 1:51 pm PDT, April 1, 2007 NASDAQ 2421.64 +3.76 For info, visit access.smallcapnetwork.com S & P 500 1420.86 -1.67 Change your subscription status here Russell 2000 800.71 +1.77 VOLUME 07: ISSUE 35 SWEB's Path May Have Just Been Paved We know it hasn't necessarily been the greatest last few weeks for the overall market, but that doesn't mean there weren't bullish opportunities - you just had to know where to look. Take Stockgroup Information Systems (OTCBB: SWEB) for instance. It's up 70% since February 27th...the day the market took its biggest loss in years, and was on its way even lower.  That's the beauty of small caps - they can overcome market-wide weakness....heck, they can even thrive on it. And at the risk of sounding a little smug about SWEB, we told ya' so - it's up 56% since we picked it back on February 1st.  The thing is, we feel the best may be yet to come. The company has been doing fine, but the stock may have just reached a critical, healthy milestone....possibly paving the way for even more gains. Interested? Here's our take on why you probably should be....    The Right Kind of Buyers If you gathered up the 'buying power' of all the retail investors (individuals like you and me, just trying to make our money work for us), it still wouldn't rival the buying power of the institutional side of the market. About 2/3 of all stocks are owned by a mutual fund, pension fund, insurance company, retirement fund, etc.  So what? The point is, even if every individual investor out there took a position in SWEB, it would still only reach about 1/3 of its growth potential. To really get that critical mass where an equity grows on the company's merit alone we think you need institutional-buying. As you might imagine though, most smaller companies have a tough time getting that level of attention from the major players. (On a side note, that's the really satisfying part of our role.)  Well, after eyeing Stockgroup recently, we have to say the critical mass may have just been met....it looks to us like SWEB is starting to get traction at the institutional level. How so? Two key reasons.  First, the move past the $1.00 mark just opened up a number of institutional windows....most likely hedge funds, but perhaps a few money managers who need to add some high-octane fuel to their portfolios. And, there may even be a few mutual fund managers in then mix (though a lot of the fund companies use $2.00 as a cut-off point). Anybody who liked the idea, but couldn't buy a sub-$1.00 stock, no longer has that barrier to worry about.  Second,look at the volume. Aside from the January volume surge we saw when Stockgroup acquired the wireless enterprise from Telecommunication Systems Inc., we saw SWEB's highest-volume day of the year on Friday - the same day it blew well past $1.00.  We estimate the 523,458 shares traded that day meant about $600,000 worth of Stockgroup shares were transacted. For a bulletin board stock doing about 1/10 of that volume at about 1/3 of that price just a few months earlier, we'd say something has changed...like the kind of investor now interested in SWEB.    What's It Worth? So what's SWEB supposed to be worth?  We've gone through this scenario before, so we'll just briefly recap the thought process like this - comparable companies have been acquired at as much as five times their annual revenue levels. Dow Jones bought MarketWatch for $519 million when the website was only generating $80 million in annual revenue. The price tag was 6.5 times sales. D&B bought Hoovers for $117 million, though Hoovers only saw sales of $32 million over the twelve months before the acquisition. That's 3.6 times annual revenues.  Based on those and other comparable acquisitions, we wouldn't be shocked to eventually see bidders offering prices as high as four to five times Stockgroup's revenues. Meaning, if Stockgroup can push sales up to only $20 million, a market value of, say $90 million, wouldn't be out of the question.  Compare that to the current market cap of roughly $38 million, and last year's sales (counting the $6 million done by the wireless telecom outfit bought in January) of about $14 million. The sales/cap ratio is then about 3, which is still cheap relative to the acquisitions we mentioned above.  However, with what we've seen from the company lately, we think 2007's sales are going to be way, WAY better than just the $14 million done last year.  Think about this....the wireless unit did $6 million in 2006, so let's just assume they're good for another 1.5 million per quarter this year. Stockgroup - without the aid of the wireless business - did a little under $8 million last year, but did $2.3 million in business in Q4 (ending 12/31/06). It was the 16th consecutive quarter of revenue growth.  You see where this is going? The revenue increases have become very reliable, and a big chunk of the company's products were only launched in mid or late 2006! If they can put up those kinds of numbers without all the pieces in place, what do you think they'll be able to do when they have the benefit of being able to fire on all cylinders?  We'd guess a more realistic annual sales projection is something more along the lines of $16 million to $20 million....let's just split the difference and say about $18 million. Multiply that - again conservatively - by four times sales, we'd say a projected market cap of more than $70 million (or more) isn't unreasonable. That's about 80% higher than what it is now. Needless to say, that leaves a lot of room for growth.    Raising The Bar It's such a rarity when we do this, the fact that we're doing it today should tell you quite a bit.  In January when we took our first look, we figured Stockgroup had the right stuff to be a nice little doubler, potentially moving from what was than a price of 71 cents all the way up to $1.51. However, after following the company for a couple of months -and really getting to know them - we think we may have been a little conservative with our original price target. So, we're going to raise the suggested target - along with the suggested stop.  Let's move the target up to $2.00, and raise the suggested stop level to 63 cents. Where'd the numbers come from? The 63 cent level is just a hair lower than the consolidation 'zone' we saw framed in February. As for the target, go back to the market valuation we guess-timated above.  If $70 million (just for starters) is a reasonable valuation based on sales of somewhere between $16 and $20 million, then the current valuation of $38.9 million is only a little less than half of what it should be, in our opinion. Ergo, we think SWEB's 33.5 million I&O shares are likely to be worth something closer to $2.00....nearly twice the current value of $1.16. In any case, don't get too bogged down by the math. The real attraction to Stockgroup is not the valuation model, but the growth story producing the results behind the model. Stockgroup just showed us their 16th straight quarter of better revenue. On top of that, for all intents and purposes, the majority of the company's current products and services weren't up and running - at least in their current, value-added format - until the latter part of 2006. Yes, we feel SWEB owners have a lot to look forward to...even more than we first thought. If you agree, but aren't yet an owner, we think there's still plenty of nice upside in store.      We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 Reader Question on Titan Answered Sometimes we don't see the forest for the trees. We got this question from a reader earlier today, verifying the notion.  Dear Ed, Can you put into English what Titan sells? What is the product? Who are Titan's competitors?  The question highlighted the fact that a lot of you may not know exactly how Titan Global Holdings (OTCBB: TTGL) actually makes money, aside from being in the 'telecom business'. After all, we spend most of our focus talking about how much money they're going to be making. Here's the deal...  Titan makes money in two ways. 1. They sell pre-paid phone cards in the niche United States-to-Latin-America market. In other words, they're focused on servicing the people who want to make phone calls from the U.S. to anywhere south of the U.S. border down to the northern part of South America. The thing is, considering the number of people living in the States that have a need for this kind of service, it's hardly a 'niche'. This is the bulk of their telecom business. 2. They sell pre-paid phones, to the same consumers. Ideally, they'd like to convert all of these limited-minute phone customers to monthly subscribers, as that business is more lucrative. But, even just selling the 'one shot' phones is a pretty good gig.  As far as competition, that's the sweet spot....there's really none. OK, there's some, but not much.    Our Readers Sure Can Pick 'Em You might recall a few weeks ago we opened our doors to reader-submitted trading ideas - ideally small cap ideas. One of the better one we've been following since then is N-Viro International Corp. (OTCBB: NVIC). It got some serious traction a couple of days ago, and may well be a rising star.  Long story made short, the news has been good lately...very validating good news, to be specific. Michigan State University ran an independent test of the N-Viro fuel in their own coal-burning electricity plant, and found that the NVIC blends work comparably to pure coal. In other words, it works.  The 'big deal' is the environmental benefit of the N-Viro blend. Coal is messy to work with, and a pollutant when it burns. The N-Viro mix not only burns well, but also burns cleaner....in addition to easing the burden of dealing with sewage waste and sludge.  The upside to the idea is practically infinite, yet amazingly, it's not a well-known clean-power process.....at least not yet. We still sense an outstanding speculative opportunity.  Check out the details for yourself and see what you think - just click here. If you have other undiscovered small cap trading ideas, feel free to let us know. Just include a brief pitch as well.  Subscribe Information is power and timely information is profitable. Become informed and profit from Small Cap Network Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the Small Cap Network Email Newsletter on a regular basis. 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