Looking for More Breakout Gains

A little over one month ago I brought your attention to a compelling under-the-radar small-cap company, MIND C.T.I. (MNDO), whose shares appeared primed for an imminent breakout, hovering just below historical resistance at $2.50. Sure enough, with the release of the company’s excellent Q2 earnings report, MNDO has surged to a new 52-week top of $3.13 — and I believe there will be more gains to come in the near future for this promising company’s share price.

In case you missed the first story, MIND C.T.I. is an Israeli concern that 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.

The company’s convergent billing and customer care solutions support multiple services, including voice, data and content services, as well as both prepaid and postpaid payment models in a single platform. The company’s prepaid solution authorizes each service and controls each session in real time, assuring that the balance is not exceeded.

The first thing that caught my eye about MIND C.T.I. in July was its Q1 earnings results released May 12. Revenues for that 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. Net income of $1 million or $0.05 per share, was up from $162,000 and $0.01 per share for the comparable period.

In the wake of that report, MNDO shares painstakingly worked their way up to the $2.50 level, with a few “test” breakouts above that mark ultimately failing. Even the announcement of several significant contract wins in the interim weren’t enough to whet the appetite of buyers beyond that level, and trading volume on this normally thinly-traded issue began to dry up again.

Even so, I was encouraged by the textbook base-building MNDO shares had experienced, trading in the narrowest of year ranges, between $1.60 – $2.49. That’s because I’d much rather see a slow steady move up, with sellers discouraging traders to jump in and out of positions by preventing the momentum money from ruling the day — which makes for far more price stability over the long haul.

At the time of its Q1 report MNDO was a thinly traded stock, with an average daily churn rate of about 50,000 shares over the past year, with a float of about 15 million shares. All of that changed dramatically for the better, however, after the company issued its Q2 earnings results, which were quite stellar.

One week ago, on August 6th the company reported Q2 sales of $6.3 million, up 10% sequentially from the first quarter of 2014, and up 42% from $4.42 million in the second quarter of 2013. Operating income was $1.6 million or 26% of revenue, up 40% sequentially from the first quarter of 2014 and compared to $0.5 million in the second quarter of 2013.

Perhaps most significantly, net income surged to $1.45 million or $0.08 per share, compared to $0.4 million or $0.02 per share in the second quarter of 2013. And the company’s cash position of $17.8 million remained strong, up $300,000 from the previous year.

mndo

As you can see from the candlestick-laden chart above, market participants embraced MIND C.T.I.’s Q2 results quite favorably, initially pushing the share price to a new 52-week top near $3. After the momentum died and profits were taken, MNDO slid back to about $2.65 per share, but only briefly. From there, buyers have stepped up to the plate steadily, with the stock recording a fresh 52-week top of $3.13 earlier this week.

Of course, this raises the question of whether or not there will be a significant pullback in MNDO to “fill the gap” from $2.50? In my opinion, the historical chart actually points to more gains ahead on a technical basis, with the crack and hold of the $3 mark suggesting that a run to $3.50 might be in the works — with that level last seen by MNDO in early 2011!

The lengthy period of base-building also tends to support the bull position in an MNDO trade above the $3 mark, and so too does the price rise accompanied by unusually high trading volume. At last look, MNDO’s average daily trading volume over the past 10 days — several of which have been notably precarious for the market as a whole — has swelled to about 410,000.

Finally, management was highly optimistic about the company’s prospects going forward. In the earnings release, CEO Monica Iancu stated, “As previously announced, since the fourth quarter of 2013, we closed large deals that will be significant both to our revenues and to our margins for the next few quarters.”

[mepr-rule id=”994″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule] 

[mepr-rule id=”204″ ifallowed=”show” description=”penny_pick_elite_members_only”]
If the company’s future proves to be as bright as projected — and there’s little reason to believe otherwise — then six months from now MNDO’s $3 share price may look like a bargain.

As always, trade all stocks with caution, as the only predictable thing about the markets is that they will be unpredictable at times.
[/mepr-rule]

[mepr-rule id=”988″ ifallowed=”show” description=”executive_lounge_members_only”]
If the company’s future proves to be as bright as projected — and there’s little reason to believe otherwise — then six months from now MNDO’s $3 share price may look like a bargain.

As always, trade all stocks with caution, as the only predictable thing about the markets is that they will be unpredictable at times.
[/mepr-rule]

Warren Gates, Senior Analyst, Normandy Research

Share your thoughts...

We encourage people to join in on the discussion. Please keep in mind however, that all comments are moderated according to our comment policy, and all links are nofollow. Let's keep the conversation professional and meaningful.