China Techfaith (CNTF) - Sold

Posted by: Dr. Ge on November 30, 2005 9:55 pm | In Long Ideas, China Stocks | |

I sold my 1000 shares of CNTF today before the sudden 10:50 AM big pop up. The trading pattern of the stock this morning was quite strange. There was absolutely no volume before 10:50 AM. I had a gut feeling either the stock would pop big or dip significantly soon. I chose the worse scenario and sold the stock to protect my 50% profit.

It has been a good run but the stock was so volatile that even a guy like me who is used to big swings (you get + or - 200% easy in options in a day) got dizzy. I still feel that my $18 price target is achievable in the coming weeks. As I said before, the short term momentum is simply too strong. It has become a trader’s stock.

However, after examining the earning report of last quarter in details, the negative operating cash flow in Q3 2005 got me worried. Basically there were two significant cash outflows compared with the cash position of last quarter - $6.5 million from increases of accounts receivables, and $6.5 million from decrease of “Advance from customers”. Both are significant accounting red flags. Therefore, the operating result of Q3 2005 was not as optimistic as the company claimed, rather, in my opinion, it might show some problems that the company faces.

I still believe in the long term potential of the company and China 3G license issuance could be a significant boost both to China Techfaith’s business and stock. But one thing that every investor should pay attention to is the incoming insider sales that may happen very soon. The IPO lock-up period of CNTF ended on November 2, 2005.

Disclaimer: Under no circumstances does the information in this post represent a recommendation to buy or sell stocks. Information in this post may not be accurate and it only expresses Dr. Ge’s own opinion. Please note that due to factors including low market capitalization and/or insufficient public float, we consider CNTF to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information.