This week's potential superstock of the week is once again a company that has appeared in my blog before. inTest Corporation (INTT) fir...

Weekly Superstock Scan 13 Aug 2018 - 17 Aug 2018: inTest Corporation (INTT)

This week's potential superstock of the week is once again a company that has appeared in my blog before. inTest Corporation (INTT) first appeared on my blog in October last year. To recap, INTT is an independent designer, manufacturer and marketer of thermal management products and semiconductor automatic test equipment (ATE) interface solutions.






inTEST comprises two business segments under five brands – Ambrell, Temptronic, Sigma Systems, Thermonics, and EMS Products – that collectively focus on electronic test, process cooling, and induction heating.
  • Thermal:  inTEST Thermal solutions provides thermal products for test and development applications, while Ambrell provides thermal induction heating products for industrial manufacturing applications.
  • Electrical and Mechanical (EMS): Consists primarily of manipulator, docking hardware and tester interface products, which INTT designs, manufactures and markets. 
When I first blogged on INTT last year, it was trading at $9.65. After the breakout, there was no follow through and it bounced off the $10 big round number. Subsequently price drifted down and I exited the trade with a loss. Will it be a better second entry this time round?

Technical



After the bear trend started in October last year, price began to stabilise in April this year. Since then, price traded in a tight range from $6.85 to $8. Last week, price broke out of the range to hit $9.45 before retracing and closed at $8.85. The volume for the week was 600k shares, approximately two times its weekly average.

The catalyst for the spike was the release for Q2 2018 results last week where INTT reported a 33% y-o-y increase in revenue and EPS increased y-o-y from $0.14 to $0.39.

Fundamental



Including the current quarter, INTT reported 7 consecutive quarters of year on year EPS growth.

Acquisition of Ambrell Corporation

The potential catalyst for INTT remained largely unchanged since last year. The main catalyst is the acquisition of Ambrell Corporation. In May 2017, INTT acquired Ambrell Corporation. Ambrell is a provider of precision induction heating systems and is known for its application and engineering experience.

The Ambrell acquisition will complement INTT's current thermal technologies. The acquisition also lead to new market opportunities in the non-semi market, in particular machinery, consumer and food and beverage.

In May this year, INTT announced the expansion of Ambrell Corporation to New Rochester, New York. This all Ambrell to expand from approximately 40,000 square feet at the previous facility to 80,000 square feet at the new location to accommodate the rapid company growth.

M&A Opportunities

INTT is a consistent cash generator, generating around $7 million in cash per year. As at the end of last quarter, INTT has $12.7 million in cash to finance acquisition opportunities. 

INTT has extensive M&A experience and 81% of its 2017 revenues were derived from acquired entities. 

Matrices
o Small float of  8.3 million shares. However, its average trading volume is even smaller at 42 thousand shares. Float approximately 200 times its average daily trading volume.
+ INTT is trading at only 8.3 times its trailing twelve months EPS. 

Risk Factors/ Things I do not like:

  • Selling Pressure: There is selling pressure on the stock both in the short and long term. In the short term, we saw that last week's candle did not close on its high but instead retraced a fair bit from its high. Hence there may not be follow through in the coming weeks. On the longer term, INTT is moving into its previous range and the top of the range is at the $10 level. Buyers may take profit near the top of the range.
  • Expected Softness in the EMS Segment: INTT is expecting third quarter to reflect marginal softness in bookings as a result of customer-related supply chain issues. 

Last week was one of the rare occasion this year where I manage to identify a potential superstock. AUDC was shortlisted as a potential supe...

Weekly Superstock Scan 6 Aug 2018 - 10 Aug 2018: Nil

Last week was one of the rare occasion this year where I manage to identify a potential superstock. AUDC was shortlisted as a potential superstock, but I was unable to buy the stock at last week's closing price. At the start of the week, AUDC gapped above its closing price of last week, and for the rest of the week, it did not touch last week's closing price. As I placed a limit order at last week's closing price, I missed the trade.



This week, there were a number of stocks from the US market that passed the technical screen. They are ASRV, DLNG, GLAD, OXBR and TEI. Of these, ASRV also passed the fundamental screen. However, ASRV is a company in the financial industry, which is traditionally not a superstock sector. After reading its recent release, I also cannot find a potential catalyst that may lead to a spike in stock price in the near future. Moreover, I already had a financial stock - UCFC in my superstock portfolio currently, so I am not prepared to be overweight in the financial sector.

The potential superstock of the week is  AudioCodes Ltd (AUDC). AUDC was shortlisted as a potential superstock in October last year . Then I...

Weekly Superstock Scan 30 Jul 2018 - 3 Aug 2018: AudioCodes Ltd (AUDC)

The potential superstock of the week is AudioCodes Ltd (AUDC). AUDC was shortlisted as a potential superstock in October last year. Then I bought into the stock after a strong breakout, and it reversed strongly resulting in a significant loss. Will AUDC fail again this time round, or will it be a real superstock this time round?



AudioCodes designs, develops and sells advanced Voice over-IP (VoIP) and converged VoIP and data networking solutions, products and applications that facilitate secured, resilient and high quality Unified Communications (UC) and Contact Center (CC) services whether deployed on-premise
or delivered from the cloud. 

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 between $6.50 and $8 since Nov 2017. Last week, price broke strongly above the range to close at $9.46. The volume of the week was 2.34 million shares, more than 7 times its average trading volume. It is also worth noting that the breakout went way past the breakout point that occurred in October last year.

The cause of the spike the release of 2Q 2018 results where AUDC released a solid set of results and raised its guidance for the year.

Fundamental



AUDC is a very consistent performer. Including the current quarter, AUDC reported 9 consecutive quarters of year on year EPS growth.

Strong Growth of UC-SIP Business

AUDC saw an acceleration in their UC-SIP business. Previously the annual growth rates of this business is in the range of 15-20%. However, in the first two quarters of 2018, the business saw an increase of more than 30% year on year. All key business lines including the Session Border Controllers, the IP phones, One Voice Management Suite, the MSBR and Services demonstrated very solid growth and strength.

AUDC attributed the growth to their success in the enterprise voice business where they become the top vendor for delivering voice connectivity and infrastructure for US as a service and perfect center.

Investment in Voice-AI Application

In January, AUDC announced its new Voice.AI business unit that operates in parallel with AudioCodes’ core voice networking business unit. The new unit uses artificial intelligence and machine learning technologies help deliver conversational analytics, enhanced productivity and actionable insights.

The new unit has good momentum as it crossed more than 100 businesses in Israel. AUDC is also working with leading service provider that target to sell core browsing solution to their business customers in Israel, and investing in entering new markets in Europe and the U.S. for their Voice-AI application.

Deployment of Voice Services in Microsoft Teams

In May, Microsoft announced direct routing GA and basically that was an opening of the door for collaboration with service providers that can now use, bring your own trunk and connect Teams implementation to the SIP trunks of their choices. 

So far through additional investment in the Microsoft Skype for Business market was focused much more on the large enterprise segment.

So far AUDC has been working with very large enterprises. However, with the simplification of the solution in the Teams environment and more so Office 365 environment AUDC is expected to see penetration of those solution also into two new segments - the mid market and SMB. This will provide AUDC opportunities to enter into these new segments and AUDC is expecting this to happen somewhere in 2019.

Risk Factors/ Things I do not like:

  • Previously Failed Superstock: AUDC has failed me once terribly when I first shortlisted it as a potential superstock last year. However, I am more confident this time round as in the previous round, AUDC spiked before an earnings release while this time round the spike is due to a positive surprise in an earnings release.
  • Currency Risk: In the last quarter, AUDC has benefited from a favorable FX rate. However, AUDC may be negatively affected by fluctuations in the FX rate in the future.

Once again I did not find any potential superstock of the week despite finding a number of promising stocks with good technicals. On ...

Weekly Superstock Scan 23 July 2018 - 27 July 2018: Nil

Once again I did not find any potential superstock of the week despite finding a number of promising stocks with good technicals.

On the US front, we are looking at ARC, GV, HTGC, LPTH and TPVG. Unfortunately none of them have good enough fundamentals for me to consider them as superstock. Similarly for the Singapore market, Innotek had good technicals but not good fundamentals.

This has been a slow start to the second half of the year and a slow year in general. With the market in a range rather than in a strong trend like last year, the slowness is expected to continue till the end of the year. Instead of forcing less than optimal trades, I would rather focus my time on developing other strategies that can boost my income in quiet times like this. I will be more than happy to share my strategies after I have backtested them sufficient enough.

This week we do not have any potential superstock of the week. We do have a number of promising stocks that passed the technical screens.  ...

Weekly Superstock Scan 16 July 2018 - 20 July 2018: Nil

This week we do not have any potential superstock of the week. We do have a number of promising stocks that passed the technical screens. 

In the US market, we have BRT, CNTF, HCAP and JASO. Of these, BRT did have consecutive quarters of EPS growth. However, as BRT is a REIT, which is not a sector producing superstocks. With the share price trending strongly, it will still be a good stock to purchase for a smaller return. 

In the Singapore market, LHN limited passed the technical screen but did not have consecutive quarters of EPS growth. It did have catalysts for growth but having a poor record for Singapore stocks this year, I will need to be more picky with my potential superstock candidates.
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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.