Inching to a Breakout with MIND C.T.I. (MNDO)

One of my first teachers in the stock trading business introduced me to a concept he called “inching to a break.” He was referring to stocks that spend weeks or even months slowly grinding their way higher — then suddenly “pop” up in much bigger price increments. Penny stocks that are under promotion have a tendency to do it, and so too do stocks that are incrementally establishing new 52-week highs.

Today I want to bring your attention to a company that fits the latter description: MIND C.T.I. Ltd., trading on the Nasdaq under the symbol MNDO. The company develops, manufactures and markets real-time and off-line billing and customer care software for various types of communication providers, including traditional wireline and wireless, voice-over Internet protocol (VoIP), and broadband Internet protocol (IP) network operators.

MIND C.T.I.’s convergent billing and customer care solution supports multiple services, including voice, data and content services, as well as both prepaid and postpaid payment models in a single platform. MIND’s prepaid solution authorizes each service and controls each session in real time, assuring that the balance is not exceeded. Postpaid subscribers, including credit-limited and non-limited, retail or business customers, represent the higher average revenue per user market.

Before getting into the technical nature of how MNDO has traded recently and why it presents such a potentially lucrative trading opportunity, it’s important to note how the company has been performing on both the top and bottom line. In short, the answer is quite well.

As of its most recent Q1 earnings results released May 12, MIND C.T.I. is a profitable and growing concern. Revenues for the period were up 28% quarter-over-quarter and 12% sequentially. Operating income was up almost 10x from Q1 2013, weighing in at $1.15 million, and up 17% sequentially. And perhaps best of all, net income came in at $1 million or $0.05 per share, up from $162,000 and $0.01 per share for the comparable period.

In the wake of that report, on June 23, MNDO also announced two under-the-radar, but highly significant business developments. First the company inked a new contract with an East European mobile operator, which has built the first Bulgarian commercial 4G LTE (Long Term Evolution) mobile network, offering high-speed mobile Internet. MIND, together with a leading Israeli systems integrator, will provide a fully convergent billing end-to-end solution over the Nokia Siemens Networks infrastructure.

In the same press release, in the company’s traditionally understated way, they announced the first follow-on order with a provider of wireline and wireless services in Guam that selected MIND in the beginning of 2011 to provide an end-to-end convergent solution for prepaid and postpaid business models. That customer is upgrading its wireless network with the HSPA+ solution from Ericsson, once again choosing MIND to enhance the solution in order to support the network upgrade.

That wasn’t all. MIND also announced a second follow-on order with an African company established in 2009, which has been using the MINDBill system since inception for its WiMAX prepaid rollout. Following the global trend, this company is implementing Data over LTE technology, having received the local license in 2013.

As you might expect, both the solid earnings and new deal news has had a soporific effect on MNDO’s share price—but perhaps not as bullish as you might expect given giddy market conditions and the stock’s low-key establishment of fresh 52-week highs.

Usually a thinly-traded stock, MNDO has an average daily churn rate of about 50,000 shares over the past year and a smallish float of 15 million shares. Despite the stock’s slow and steady post earnings rise, sellers have kept a lid on the price for the most part. From where I sit, that’s a good thing, as you’ll rarely find a portrait of steadier base-building in MNDO shares over the past year. In fact, the issue has a strikingly narrow 52-week trading range of $1.60 – $2.49.

mndo

Now here’s where the “inch-to-break” strategy comes into focus. The stock has spent the last six weeks digesting nice gains from its recent run-up, finding support at around $2.30 per share, with current resistance at $2.50. If and when any higher volume buying interest comes in at $2.50, it may be a “tell” that this issue is ready for higher highs.

That’s because historically, $2.50 has served as a key chart pivot point, going back to 2012 — the last time MNDO shares had reached their current level. Prior to that you have to go back to 2007 on the chart to find the last time MNDO shares touched these heights! This, my friends, is the stuff that breakouts are made of.

At worst, given the nice support levels established by the stock at both $2.15 and $1.90 per share, the odds of any significant selling in MNDO pushing the share price strongly to the downside appear low—barring a major market meltdown or bad earnings news. And with the stock continually teetering at or near breakout territory, it seems worth the risk to stake out a position at current levels.

Just remember, as always, there’s no such thing as a sure thing in horse racing or the stock market, so trade accordingly!

Warren Gates, Senior Analyst, Normandy Research

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