Tuesday, February 22, 2011

Chinacast Education Corporation (NASDAQ: CAST) Q1 2011 Price Target

Recent price: 7.02$
P/E Ratio: 18.02
3 Months Target Price: 7.75$

Company Description
Established in 1999, ChinaCast Education Corporation is a leading for-profit, post-secondary education and e-learning services provider in China. The Company provides post-secondary degree and diploma programs through its three fully accredited universities: The Foreign Trade and Business College of Chongqing Normal University located in Chongqing; Lijiang College of Guangxi Normal University located in Guilin; and Hubei Industrial University Business College located in Wuhan. These universities offer four year and three year, career-oriented bachelor's degree and diploma programs in business, finance, economics, law, IT, engineering, hospitality and tourism management, advertising, language studies, art and music.

The Company also provides e-learning services to post-secondary institutions, K-12 schools, government agencies and corporate enterprises via its nationwide satellite broadband network. These services include interactive distance learning applications, multimedia education content delivery and vocational training courses.

Confidence Margins
Strong resistance $7.99 (+14%)
Light resistance $7.77 (+11%)
Light support $6.50 (-7%)
Strong support $5.80 (-17%)

Because of rumors related to complex transaction the company entered with the objective of acquiring new schools, the company's stock saw a large increase in the daily trading volume.
The silence in the following days did nothing to ease the fears of investors. On February 14th, the company's Chairman and CEO, Ron Chan issued short a statement explaining these transactions following questions by an analyst. The statement seemed to provide enough information to reduce uncertainty and this a certainly a great entry point for traders considering acquiring shares of Chinacast Education Corporation.

Entry strategy
For the cautious investor:
Buy the stock for 7.25$ or less but stay informed for coming developments and most importantly, the light support if the stock comes to pass across it.

For the risk-taking trader:
A position in the June 2011 7.50$ call option will yield a satisfactory return to investors, they can be acquired for about 70$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 7.75$, or keep it until 7.90$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 7.75$, 7.90 if you are more bullish. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.

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