This provider of interconnection switches for telecom companies dominates its niche, allowing phone companies to avoid using major phone company switches and their heavy costs. The company is in a very sweet spot.
To prove it they’ve beaten estimates for at least 4 quarters in a row and have 6 consecutive quarters of triple digit year over year EPS increases on sales increases of 38 – 65%. These are the kinds of earnings numbers that drive huge gains in a stock. Given the brutal recession we have had they are hard to find in the current market.
TNDM is on the thin side. It has a float of just 17.4MM shares and a 50 day average of just $26MM a day moving through it. Because of this and the large number of institutional investors attracted to its gaudy numbers price has been extremely volatile, making it a difficult hold even for experienced traders.
But institutions haven’t demurred. 59% of the float is now held by mutual funds, according to numbers released at the end of June. And the number of funds holding the stock has increased in the last two quarters from 79 to 114 to 129.
Because of its volatility and because it hasn’t participated in the resumed rally TNDM hasn’t had the buzz it had earlier in the year. But it shouldn’t be overlooked. Trading has quieted down in both volume and volatility. The stock has put in a constructive 5 week flat base that seems able to support another significant advance. (We call TNDM’s base a flat one, even though the correction is 20%, generally too steep for a flat base. If we use just trading opens and closes the correction is a milder, more acceptable 11.5%.)
TNDM will report earnings in the premarket on Wednesday, August 6th. They are expected to report a 71% YOY EPS gain on a 41% increase in sales. A beat and raise could propel this out of its second stage base on another healthy run.
Any break out above the $31.50 resistance point on heavy volume prior to earnings should be viewed as an opportunity. (A slightly earlier entry point would be at a break of the trend line connecting the June and July highs around $31.25.) We would not be eager to chase a gap up after earnings given the thinness of the stock and its volatile history.
Posts
Lying with Statistics: the September Jobs Report
12 years ago
TNDM "Beat The Street" this morning, but they failed to raise guidance above analysts' estimates. When a stock is in flight like TNDM has been that's bad news for shareholders.
ReplyDeleteSurprisingly TNDM held up at the open, giving traders an opportunity to exit before the stock's legendary volatility came into play. And indeed, TNDM hasn't disappointed in that regard staging a nauseating nose dive after initially opening higher on light volume.
Worse for TNDM's prospects, on the company's conference call they said they are seeing "aggressive pricing tactics" from competitors and "are prepared to compete."
For a growth story that is in an industry that supposedly has high barriers to entry, thus discouraging competition, this is not good news.
Combine these comments with the company's failure to raise guidance in any meaningful way and that means it is likely time to move on from TNDM.
What do you do if you're stuck in the horrible selling downdraft? TNDM has a history of these ugly moves and if past is prologue you can likely recover a decent portion of your loss on an intraday bounce.
Having said that we wouldn't look to maintain exposure to the name. While price might well recover and even go higher in a continuing market uptrend we feel, based on the earnings report and conference call, the aggressive growth story could be coming to an end for TNDM.