Last week, we had a week without potential superstock after a long streak of weeks with potential superstocks uncovered. This week, we had n...

Weekly Superstock Scan 20 Nov - 24 Nov 2017: Nil

Last week, we had a week without potential superstock after a long streak of weeks with potential superstocks uncovered. This week, we had no potential superstock once again.



There were a few potential stocks that passed the technical scan. In the US market, we have TAST, DRUNF and JNP. And in the Singapore market, we have Innotek. None of the mentioned stocks had consecutive quarters of year on year EPS stock.

So it is another week of managing my existing superstock portfolio and I look forward to finding potential superstocks again next week.

For the past few weeks I managed to uncover some potential superstock. Most of them did not work out and I have exited some of them with los...

Weekly Superstock Scan 13 Nov - 17 Nov 2017: Nil

For the past few weeks I managed to uncover some potential superstock. Most of them did not work out and I have exited some of them with losses.



This week there was no superstock shortlisted. BOOT and MFIN did pass the technical test but not the fundamentals. BOOT does have a two consecutive quarters of EPS growth. It does not have a longer term catalyst, and retail sector is hardly a superstock sector. AMRC did come close, but it lacks a long flat base.

I will be exiting my positions in OSBC and LPTH as they closed below the 10 MA the past week. LPTH was an utter disappointment with the latest earnings release. A 23% drop in share price on last Friday alone. I need to look at how to better manage my risk in situations like this.

The potential superstock of the week is TransAct Technologies (TACT) . TACT is engaged in the developing and selling of software-driven tech...

Weekly Superstock Scan 6 Nov - 10 Nov: TransAct Technologies. (TACT)

The potential superstock of the week is TransAct Technologies (TACT). TACT is engaged in the developing and selling of software-driven technology and printing solutions for high growth markets including restaurant solutions and casino.

 



By sales units, TACT operates in the following area:
  • Restaurant solutions - Line of AccuDate terminals for backend restaurant solutions
  • POS automation and banking - POS printers
  • Casino and gaming - Printers used in slot machines, video lottery terminals and other gaming macines
  • Lottery - Lottery printers to International Gaming Technology and its subsidiaries
  • Printrex - Used to log and plot oil field and down hole well drilling data in the oil and gas exploration industry
  • TransAct Service Group (TSG) - Sales of consumable products, replacement parts, maintenance and repair services.
As at Q3 FY2017, Casino and Gaming and TSG are the largest contributors to TACT's revenue, contributing about one-third each.


Technical




Price has been consolidating in a $9.00 - $ 10.50 box since August this year. On a longer term since March, TACT has been trading in a small range from $8. Last week, TACT delivered a wonderful set of Q3 2017 results, causing TACT to soar to close at $12.80. The volume of the week was 385 thousand shares, 5 times its average weekly trading volume.

Fundamental



Including the current quarter, TACT reported 4 consecutive quarters of year on year EPS growth.

Diversification into Restaurant Solutions

TACT entered the restaurant solutions market several years ago with the understanding that it would require a multi-year ramp-up. In the recent few quarters, the restaurant solutions segment was a main contributor for TACT's growth. In the last quarter, the revenue from the segment almost doubled from third quarter a year ago.

In 2017, TACT launched its flagship product - the AccuDate XL terminal in May at the National Restaurant Show. Since then, sales of the product has been growing. The AccuDate XL has many functions and is set to revolutionise food preparation, food management and other critical back-of-house processes. 



To support the growth of this segment, TACT has also assembled a team of sales professionals who are focused exclusively on the restaurant solutions market. A direct marketing campaign aimed at driving awareness for AccuDate XL terminal was also implemented.

Building Recurring Revenue

TACT has been moving forward with the strategy of creating recurring revenue. For the AccuDate terminals, TACT requires its customer to exclusively use their TransAct labels if they want to warranty on the terminal. This will provide a source of recurring revenue as customers purchase the TransAct branded labels for the terminal.

TSG has also began to offer a full suite of software maintenance and product support warranty offerings to increase the amount of recurring revenue. 

A trend TACT saw in the lottery market is the lengthy extension of existing contracts for the lottery market. This is likely to drive sales of spare parts for the lottery printing machines.

Nice Ticker

TACT's easy to remember ticker may play a role in letting the stock goes viral.

Matrices
o Small float of  6 million shares. However, its average trading volume is even smaller at 22 thousand shares. Float approximately 272 times its average daily trading volume.
- TACT is trading at 19.1 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • High Valuation: With TACT trading at 19.1 times its TTM EPS, there is a good chance that it is already fairly valued and upside might be limited.
  • Dependency on IGT in the Lottery Market: The lottery market is still a significant contributor for TACT and TACT is almost fully dependent on IGT for the market. IGT's purchase cycle will affect TACT directly and may cause fluctuation in its earnings and stock price.

This week's superstock scan is different from the past. In this post, I will present with a new superstock candidate. As some old guards...

Weekly Superstock Scan 30 Oct - 3 Nov: LightPath Technologies, Inc. (LPTH)

This week's superstock scan is different from the past. In this post, I will present with a new superstock candidate. As some old guards (stocks that I have highlighted earlier this year) re-appeared in my superstock scans, I will be highlighting them in a separate post. In that post, I will also be discussing some actions that I will be taking next week due to the high number of potential superstocks that appeared in the scan this week.


The new superstock of the week is LightPath Technologies, Inc (LPTH). LPTH manufactures optical components and higher level assemblies including precision molded glass aspheric optics, molded and diamond-turned infrared aspheric lenses, GRADIUM glass lenses and other optical materials used to produce products that manipulate light.





LPTH has a diverse clientele consisting of companies from industrial, laser, defense, medical, telecommunications, and instrumentation.


LPTH organized its business based on five product groups: low volume precision molded optics (LVPMO), high volume precision molded optics (HVPMO), infrared products, speciality products, and non-recurring engineering (NRE). In FY 2016, HVPMO and LVPMO contributed 36% of revenue while Infrared contributed about half of LPTH's revenue.


Technical



LPTH has been trading mainly in the range of $2.50 to $3.30 since April this year. Last week, price broke strongly above the range to close at $3.75. 8 millions shares were traded last week, which is 4 times its average trading volume.

There was no news on the company last week, so the reason for the strong surge in price is unknown.

Fundamental



Including the current quarter, LPTH reported 3 consecutive quarters of year on year EPS growth.

Acquisition of ISP Optics Corporation

In December 2016, LPTH acquired ISP Optics Corporation, a manufacturer of infrared products ranging from custom infrared optical elements to catalogue and high performance lens assemblies.

The acquisition allowed LPTH to gain additional capabilities and provide more products such as germanium, siliocon or zinc selenide aspheres and spherical lenses which are manufactured by diamond turning, hence meeting more demands required in an increasingly complex industry.

The acquisition also benefited LPTH in terms of larger scale and improved operating leverage.

Parts used for Self-Driving Vehicle

LPTH is working on the Light Distance and Ranging (LiDAR) line. LiDAR sensors are used in self-driving vehicles to allow the vehicles to see what is around them.

In April 2017, LPTH formed a partnership with OLE-Systems Laser Technology Co., a subsidiary of GreatStar Group, where LPTH is involved in design and manufacture of an optical system assembly based on its high power fiber delivery technology. The fiber delivery system will allow production-level position mapping for mission-critical applications, such as those for use with autonomous vehicle instrumentation

Increased Capacity

LPTH is in the process of adding additional equipment at their Orlando, Zhenjiang and Riga facilities. Additional space are also added at their Zhenjiang and Riga facilities.

These increases in capacity is to handle their short-term growth based on their expected demands.

Matrices
o Small float of  19.1 million shares. However, its average trading volume is even smaller at 300 thousand shares. Float approximately 64 times its average daily trading volume.
o LPTH is trading at 11.4 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • Multi-year resistance - The $3.70-$3.80 region is a multi-year resistance level. Since 2009, whenever, price hit that level, it will bounce off the resistance line. Even though this time round, the volume when it approaches the level is way higher, there may be many technical traders looking to sell/short the stock at that level.

  • Hurricane Irma - LPTH is affected by hurricane Irma though to a small extent. Their headquarters were left without power for days. As that is the period where the company ships heavily, their Q1 results may be adversely affected.



The potential superstock of the week is AudioCodes Ltd (AUDC) . AUDC is a supplier of Voice-over-IP (VoIP) and data communications tec...

Weekly Superstock Scan 23 Oct - 27 Oct: AudioCodes Ltd (AUDC)

The potential superstock of the week is AudioCodes Ltd (AUDC).



AUDC is a supplier of Voice-over-IP (VoIP) and data communications technology. It designs, develops and sells advanced VoIP, converged VoIP and Data networking products and applications to Service Providers and Enterprises.  AUDC also provides a wide range of products including Media Gateways, Multi-Service Business Routers, Session Border Controllers (SBC), Residential Gateways, IP Phones, Media Servers, Value Added Applications and Professional Services.

AUDC categorize their revenues from products and services into two main lines:

  • Networking - This is split into Gateways, UC-SIP and Applications. These include VoIP Media Gateways, IP Phones, Microsoft specific appliances and mobile VoIP solutions. This line contributes approximately 90% of AUDC's revenue
  • Technology - This consists of chips and boards business products sold primarily to OEMs.

Technical


AUDC has been trading in a range from $5.90 to $7.30 since November 2016. Last week, price broke above the range to close at $8.38. The volume for the week was 2 million shares, more than 5 times its average trading volume.

The catalyst for the surge in price was a press release announcing that BT, one of the world’s leading providers of communications services and solutions, has selected AudioCodes Mediant session border controllers (SBCs) to provide connectivity between BT’s business customers and its SIP trunk service in the UK. 

Fundamental


Including the current quarter, AUDC reported 4 consecutive quarters of year on year EPS growth.

Consistent Growing Pace of Migration to All-IP Networks

For the gateways line, there is continued migration to all-IP networks, mainly in the North America and in Europe. The company believes its an ongoing trend that will extend to 2025 and beyond.

This is a surprise for the company as they have earlier on expected declining gateway revenues compared to 2016 but first half 2017 sales grew by 10% year on year instead.

Growing Deployments of Cloud-Related Solutions

Revenue has slowed down due to slow adoption of the Microsoft Cloud PBX solutions. Is there demand for the service? Yes. The reason for the slow adoption is due to enterprise sitting on the fence while waiting for Cloud PBX to be more mature.

AUDC is expecting the demand to pick up in the coming quarters.

Matrices
- Small float of  20.1 million shares. However, its average trading volume is even smaller at 95 thousand shares. Float approximately 222 times its average daily trading volume.
- AUDC is trading at 25.8 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • High Valuation - At 25.8 times trailing twelve times average, its growth rate can barely support this type of valuation therefore the upside might be limited.
  • Earnings Release - AUDC will report its earnings on 25th October before market open. It is always not advisable to hold through a earnings release without buffer.
  • Microsoft Skype for Business to be Replaced - Microsoft announced at its Ignite conference that it plans to kill off Skype for Business in favor of Microsoft Teams. AUDC derived a significant amount of income from Skype for Business therefore if its solution cannot be adapted by Microsoft Teams, its business will be drastically affected.

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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.