Sometimes there are fundamental reasons for a company’s stock price to rise – usually tied to expanding sales and a growing bottom line profit. Other times a stock will jump primarily based on its technical trading profile. In the case of the issue I want to bring to your attention today, the under-the-radar small cap play Highpower International (HPJ), the company’s business and stock performance are both pointing to potential breakout highs ahead.
Highpower International, Inc. is engaged in the production and sales of rechargeable nickel-metal hydride (Ni-MH) batteries, lithium batteries and battery systems. The company also recycles scrap battery materials through outsourcing and resells the recycled materials to some of its customers. The company’s batteries fall into two main categories—consumer and industrial. The consumer batteries category produces Ni-MH and lithium batteries, while the industrial batteries are designed for electric bikes, power tools and electric toys.
First, let’s look at how this company has been performing at a nuts and bolts level. Over the past four quarters HPJ has recorded revenues north of $30 million three times, with the other quarter showing almost $25 million in sales. For the three $30-million plus quarters the company was mildly profitable, and posted a small loss during the $25 million period that ended in March, 2013.
In its most recent reporting period for the quarter ending June, 2013, >Highpower achieved a significant sales milestone in its lithium business, which delivered the strongest quarter for that segment in the company’s history. Net sales were up 33% both sequentially, and quarter-over-quarter from the same period in 2012. According to company CFO Henry Sun, lithium volume continues to help HPJ’s overall business growth and represents the primary growth driver for Highpower going forward.
That’s extremely significant due to the overall warp-speed growth in the lithium-battery marketplace. Research and Market issued a report in July 2013 that pegged the global lithium battery market at $25 billion mark by 2017. Just last year, that market grew in excess of 30%, with 38% of the industry growth attributable to consumer electronics. That’s why Highpower is focusing on its cleaner, higher capacity lithium batteries.
CFO Sun mentioned that expanding the company’s reach in this segment may take away from short-term bottom-line results, but will ultimately propel Highpower to greater profits. “We are positioning our planned increase in production capacity to meet the growing demand for batteries that sell into this high growth consumer electronics sector, and we are working on a robust pipeline of a new product in the space,” Sun stated. “… our new automated facility in Huizhou, which will be coming online later this year…should begin shipping some initial products…as early as the fourth quarter. With the addition of this automated facility, we believe that we are well positioned to attract larger customers, and to capitalize on the growing global demand for rechargeable batteries.”
Sun added some icing on the cake, saying that the company will be working to achieve sales in South America for the first time during the coming year. He also reaffirmed the company’s existing guidance anticipating revenue growth of 12 – 15% over the prior year and said the company should remain profitable for the period.
If you like what you see about the company’s prospects, you may like HPJ’s technical chart set-up just as much. Put simply, technically HPJ’s chart is a poster child for what is commonly called long-term base formation—when a stock trades at the same level, with little variation in price. Essentially HPJ spent must what have felt like an eternity to shareholders in the $1.00 – $1.10 channel, briefly poking its head above $1.15 before recoiling again to support at $1. That base, however, appears to have provided a powerful foundation to springboard HPJ shares higher, on growing volume over the past month.
From the time the company’s most recent earnings report was released at the beginning of summer, trading action in HPJ slowly began to move its price north. First shares tested and held the $1.20 – $1.25 channel where market participants appeared to lose interest, based on declining trading volume numbers. Then, toward the end of September, buyers stepped in again on rising volume, taking the share price up with them—a very bullish indicator. Recently HPJ pushed through its previous 52-week top of $1.54, rising to a fresh 52-week zenith of $1.69 before pulling back slightly.
An added plus to playing shares of HPJ right now is that the sector has been especially hot. Shares of competitor China Bak Battery (CBAK) recently doubled in price, and the proliferation of smaller, battery-operated devices bodes well for the size of the marketplace going forward. The issue also has a trader-friendly float 7.7 million share float, which may prove attractive to the momentum crowd if HPJ can continue to break through to new 52-week highs.You may be put off by the relatively quick rise in HPJ’s share price recently, and it’s always risky to play a stock that has just touched a new 52-week high. That said, it’s common for issues with the kind of well-formed base HPJ to springboard considerably higher once they get a head of steam, and currently HPJ continues to emit strong buy signals.
As always, trade this and all stocks with care and caution!