Good things some in pairs. This week, I will be posting on two potential superstocks which share much similarities. Both are easy to ...

Weekly Superstock Scan 6 May 2016 - 10 May 2016: BOSC

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Good things some in pairs. This week, I will be posting on two potential superstocks which share much similarities.

Both are easy to understand companies with simple operations and deals with products we see in our daily lives. And analysts have very interest in these companies as not a single question was asked during the earnings call.

The first company that I will be introducing is B.O.S. Better Online Solutions Ltd. (BOSC). It has two divisions. (Read about the other superstock of the week HBP here) BOSC's RFID and mobile division offers a comprehensive suite of Automatic Identification Data Collection system based on RFID and Mobile technologys, including RFID and AIDC hardware and communications equipment, BOS middleware and industry-specific software applications. Its supply chain division provides electronic components consolidation services to the aerospace, defense, medical and telecommunications industries as well as to enterprise customers worldwide

Technical



As Good As it Gets for a Textbook Breakout

BOSC broke out from a long flag base with hugevolume. The weekly volume during the breakout was 19 times its average weekly volume!

On top of that, BOSC has a clean chart in recent months with little whipsawing and false breakouts. Overhead resistance formed by buyers who bought at a higher price and waiting to exit at breakeven is expected to be minimal. The last time price hit this high was more than a year ago. We have already seen price pullback on the daily charts and this may be attributed by the weak hands that bought more than a year ago. If BOSC can move higher from here, the price will be better supported by the stronger hands.

Fundamental



Acquisition of iDnext Ltd

In Jan 2016, BOSC acquired iDnext Ltd and its subsidiary Next-Line. iDnext Ltd is a private Israeli company that specializes in Automatic Identification and Data Capture through barcode and RFID technology. Next-Line specializes in providing on-site inventory count services mainly to retail chains.

Following this acquisition, BOSC will be able to offer customers, a one stop shop inventory management solution. This solution include various software solutions, equipment for automatic identification and tracking of inventory and the workforce to do the clinical inventory counting. The acquisition also allow BOSC to gain access to a long-standing customer base of top retailers in Israel.

The acquisition has already contributed $0.5 million (out of $8.1 million) of revenue in 1Q2016

Low Float

BOSC has an extremely low float of 1.68M shares. In the past 3 months, the daily average number of shares traded in the past three months is 439k shares. In the past 10 days, the average number of shares traded is 3.84M shares, more than double its float.

A small float to volume ratio means that it does not take much to push the stock up (or down).

Low P/E

After the run up last week, BOSC is currently trading at $3.62. Despite the 60% run up in one week, BOSC is still trading at only 7.5 times its annualised Q1 EPS($0.12 x 4).

The stock is probably undervalued and BOSC deserves a higher valuation given its growth rate. A low valuation, high growth rate and low market capitalisation will also make BOSC a very attractive acquisition target.


Risk Factors/ Things I do not Like


  • Overbought RSI - The strong run up last week pushed the RSI above the 80 level, an indication that BOSC is overbought. Having said that, an overbought stock can continue to rise and be overbought for a long time. I included this point only for completeness and lack of risk factors for this stock.


Potential trade setup


After a strong run up, I will not be chasing the trade immediately. Pulling back to a magic line near 10wMA seems improbable, and even if that happens, the downward momentum will be too strong to warrant a trade. A more likely entry will be BOSC closing light and tight in the next few weeks.

I acknowledge that there is a good chance that I may miss the trade altogether as strong breakouts carry with them lots of momentum. As the stock will be volatile in both directions, it will be too difficult to manage the trade if I were to chase the trade.

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Previous Superstocks


AVHI (Posted on 29th May 2016 Watchlist)
Broke recent high, ready to enter

EHTH (Posted on 15th May 2016 Watchlist)
Pulled back a little, waiting for further consolidation

GDEN (Posted on 24th Apr 2016 Watchlist)
Price reach low of 12.25 last week and did not hit order at 12, to await low-risk entry

EXFO (Posted on 10th Apr 2016 Watchlist)
Entered @ 3.8 and 3.9.

BORN (Posted on 3rd Apr 2016 Watchlist)
Trading within range and appeared to have lost momentum.

PLPM (Posted on 27th Mar 2016 Watchlist)
Consolidating, will look for possible entry at 10wMA

SNC (Posted on 6th Mar 2016 Watchlist)
Entered @ 11.95. Closed just above the gap and 30wMA, will add if bounce off from here.

EDUC (Posted on 24th Jan 2016 Watchlist)
Entered @ 9.95. Exited at 10.7, 10.75


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