While tech traders focus on action in Intel (INTC) and IBM (IBM) Wednesday, following after-hours losses Tuesday on earnings reports, a number of under-the-radar small-cap names could potentially make earnings-related moves this week.
After the close Wednesday, Israel-based chipmaker Mellanox Technologies (MLNX) reports its first quarter, with analysts expecting income of $0.34 a share on revenue of $81.6 million, a year-over-year increase of 42% on the bottom line and 48% on the top line. The company, which designs chips for storage, database, data transmission and other applications, was upgraded Tuesday to Outperform from Sector Perform at Pacific Crest. The analyst cited increasing adoption of high-performance computing, or HPC, an area where Mellanox is active. HPC has a number of uses in industry, as well as scientific research.
Mellanox shares gapped up Monday and finished 4.4% higher, rallying to an all-time peak. The market-wide upside trade may have helped boost sentiment in the stock, along with the upgrade. Trading volume was above average. The chart has been setting up well for further gains; however, earnings news -- particularly outlooks -- always has the potential to send a stock moving in either direction. Mellanox beat earnings views in each of the past four quarters.
Another small-cap tech reporting this week is Electronics for Imaging (EFII), an $819 million market-cap stock. The company makes hardware and software for enterprise printing uses. Publishers, product packagers and advertisers are among the company's customers. The Foster City, Calif., company reports after the close Thursday. Analysts have pegged income at $0.28 per share on revenue of $154.6 million. That would be unchanged on the bottom line, and a gain of 11% on the top line. Electronics for Imaging beat analysts' estimates in three of the past four quarters, and met views in one of those.
The pace of revenue growth has slowed in each of the past six quarters, to 12% from 32% most recently. That's a potential red flag for investors. Clearly, a revenue gain of 11% would continue that trend of year-over-year deceleration.
This is a volatile stock, with a beta of 1.34. It tends to show wide weekly price swings. It trades about 186,000 shares per day, definitely putting it on the thinner side. There are some positive aspects on this chart, however. The base it began forming in the summer of 2011 undercut the low of the prior consolidation. That type of action frequently flushes out traders and investors lacking in conviction, and allows bargain buyers to step in.
The stock cleared a $17.90 buy point on Monday, but closed below that level in that session and again on Tuesday. It recently got good support above its 200-day moving average before beginning a new uptrend. The stock is working on its sixth straight week of upside trade, with four of those weeks being in above-average turnover.
In the past few months, successful breakouts have been less dependent on volume than they have been historically. But if a stock makes a move following an earnings report, trade is usually heavier than normal. I normally avoid taking a new position ahead of earnings, but even a gap-up could allow an astute trader to take advantage of the move. Otherwise, if the stock moves higher following the report, less aggressive traders could wait for the next pullback before jumping in.
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