It is a long weekend in the US so I do have one more day to complete my superstock scan for the week since the potential stock of the week i...

Weekly Superstock Scan 4 Sep 2017 -8 Sep 2017: Cambium Learning Group, Inc (ABCD)

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It is a long weekend in the US so I do have one more day to complete my superstock scan for the week since the potential stock of the week is from the US. The potential stock of the week is Cambium Learning Group, Inc (ABCD). 






ABCD produces software and hardware packages serving students. Evidence-based solutions and expert professional services are provided to educators to raise the achievement levels of all students.

ABCD operates in three reportable segments:

  • Learning A-Z - produces online teaching materials to assist with differentiated instruction in reading, writing, and science for grades K-6.
  • ExploreLearning - Provides online math and science solutions for Grades 3-12
  • Voyager Sopris Learning - Includes Voyager Sopris Learning and Kurzweil Education brands. Voyager Sopris Learning provides research-based solutions focused on students who are 2 years or more behind grade level. Kurzweil Education helps kids with cognitive ability but not the comprehension skills to read at grade level.

Technical 



ABCD has been moving sideways for the longest time. Since 2016, ABCD spent its time trading between $4 and $5.70. Since the beginning of 2017, the range of ABCD further tighten to trade between $4.55 to $5.40.

Last week, price broke out above the range and closed at $6. It did hit a high of $6.24 before closing at $6. The volume for the week was 320 thousand shares, slightly less than two times its average trading volume.

The catalyst for the breakout was a press releasing on Voyager Sopris Learning’s REWARDS helping to break generational cycle of illiteracy in rural Gilmer County.

Fundamental



Including the current quarter, ABCD reported an astonishing 12 consecutive quarters of year on year EPS growth. This is also the sixth consecutive quarter with positive TTM EPS since its successful transformation in 2013. 

Transition to Digital Subscription Model

ABCD has transited to a digital subscription model since 2013. Resources are relocated to accelerate business development and launch of technology based subscription and products. Leaning A-Z and Explorelearning are already 100% digital subscription businesses. Voyager Sopris and Kurzeil Education is still undergoing transition.

The transition has been successful so far with bookings trending to technology-enabled products. ABCD is targeting 80% of the bookings to come from technology-enabled solution in 2017. This is accompanied by improving margins driven by technology-enabled products.


The potential turnaround of Voyager Sopris lead by LANGUAGE! Live and Velocity can also be a potential catalyst. These are new technology enabled products which can be significant contributors in the next couple of years. 

Sneak Preview of Third Quarter

In the second quarter results announcement conference, ABCD also included the results for July. ABCD explained that the third quarter accounted for 46% of its annual volume in 2016 and sales volume usually start in upwards seasonal trending in July. Bookings of Learning A-Z and ExploreLearning in July increased 15% and 24% year-on-year. Extrapolating the results, we are expecting to see a very strong third quarter.

Great Ticker

ABCD is an easy to remember ticker and are more likely to go viral.

Matrices
- Relatively small float of 13.8 million shares, but an even smaller average volume. Float approximately 365 times its average daily trading volume.
- Following the surge in price, ABCD is trading at a relatively high valuation of 19.4 times its trailing twelve months EPS


Risk Factors/ Things I do not like


  • Strong Resistance - $6 is a big round number that ABCD breached but failed to close above, resulting in a weak candle. Buyers may continue to take profit near this level and it may be hard for price to break out further.
  • Unconvincing Catalyst - Even though the timing of the press release coincide with the breakout, I am not sure if it is the real catalyst. REWARD is in no way a major product of ABCD and even with the recognition it is unlikely to have much impact on ABCD's earnings.




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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.