Machinery – Gen Industrial
LGL is a company in the network infrastructure component business – it has large company customers such as Cisco, Erricson, Raytheon, Honeywell, and others.
The company was around in the 90’s for the internet bubble. The stock declined from a top in 1998 to a low of exactly $1 a share in late 2008. It spent the next few months forming a base and broke out of its bottom, going from $2 to $4 in about three weeks to start of its recovery. Much like the other stocks, this one was in decline for many years and broke out with the bear market bottom in early 2009. Also like the other stocks, after it bottomed it formed a long base to act as a springboard for a big move.
In mid 2009 LGL began forming what would be a 11-month cup with handle base, with the handle forming in February and March 2010. The breakout of this pattern on high volume on an earnings report was all it took to stir the tanks for this rocket. It yielded 7 breakouts including the c&h breakout. Not all were perfect but there were chances to trade this one. I have noted the bases, breakouts, and any breakout catalysts on the chart.
First the charts, then the other stuff.
Stock is very low float: 1 million shares. Average daily volume 21k.
Sector RS = 84. Other stocks in group did well: SHS RBN AIMC DXPE.
IBD Ratings: Comp 91; RS 99; EPS 80
Fund trend: UP – Funds 14, 15, 18, 18 in March-Dec 2010. You can see the fund buying in September on the chart in the increase in volume and dollar volume.
Stock’s PE and PB were 10 and 6, and D/E was 7%.
EPS Growth was triple digits as the company went from loser to growth stock. Growth was 400/-8, 202/42, 326/73, and 305/69 in the Dec ’09 – Sept ’10 eps reports. Earnings mattered. Earnings for 2010 and 2011 was projected to grow 384% and 24%.
So why did this stock go up 500% in a year? Easy to see - this stock had neglect + explosive earnings growth + low float...and that turned into momentum under fund buying pressure. Who says earnings don't matter huh?
No comments:
Post a Comment