The superstock of the week is inTest Corporation (INTT) .  INTT is an independent designer, manufacturer and marketer of thermal, mechanical...

Weekly Superstock Scan 16 Oct 2017 - 20 Oct 2017: inTest Corporation (INTT)

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The superstock of the week is inTest Corporation (INTT).  INTT is an independent designer, manufacturer and marketer of thermal, mechanical and electrical products that are primarily used by semiconductor manufacturers in conjunction with automatic test equipment (ATE) in the testing of integrated circuits. INTT also markets their thermal products in markets outside the ATE market, such as the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. 

 



INTT operates in two segments:
  • 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. 


Technical


INTT has been trading in a box between $6.40 and $9.50 since May 2017. Last week, price gapped up above the box. It did hit the $10 big round number before retracing and closed at $9.65. The volume for the week was 4.6 time its average trading volume.

On the daily chart, the gap occurred on the 9th October. The only news for the day was INTT announced research coverage initiated by Dougherty & Company and Sidoti & Company. I am not sure if this is the cause of the spike but I do not think such news warrant a strong move in the stock price.

Fundamental



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

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 and broaden their position in industrial markets with a diverse customer base in a broader manufacturing space, including in many emerging markets, consumer product packaging, fiber-optic, automotive and other markets.

The acquisition also brings INTT closer to its goal of 50% revenue diversified outside of semi-conductors.

M&A Opportunities

INTT has no debt and $7.8 million in cash available to finance acquisition opportunities. INTT has a good track record of M&A, and 79% of its revenue in 2016 is derived from M&A.


Matrices
o Small float of  5.7 million shares. However, its average trading volume is even smaller at 92 thousand shares. Float approximately 62 times its average daily trading volume.
- INTT is trading at 16.9 times its trailing twelve months EPS. 

Risk Factors/ Things I do not like:


  • Concentrated customer base - INTT generate a large proportion of their sales from a small number of customers. For example, in 2016, Hakuto Co. Ltd. accounted for 13% of its consolidated revenues. Its ten largest customers accounted for half of its revenue. If INTT were to lose one or more of its large customers, its profitability will suffer drastically.
  • Big Round Number - INTT is trading just below the $10 level which is likely to serve as a strong resistance level.
  • Insider Selling - In the recent months, there were substantial selling by insiders (major shareholders) including Satterfield, Thomas A Jr and Thompson, Kristen Holt. It may be a sign that the insiders already see the share price as fully valued and upside may be limited.


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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.