RuggedCom Inc. in the hands of patient investors

Jun 3rd, 2011 – Comment

If the shares make a sustained move above $22.00 it can run to $26.00 without much resistance.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Good morning Lou,

Interested on your take for RuggedCom Inc. (RCM). They just reported excellent results but stock hasn’t budged & volume very low.

Thank you,

Patrick

Hi Patrick,

Thanks for the assignment. RuggedCom Inc. (RCM TSX) provides networking  hardware and software that is designed for use in harsh environments. Over 60% of their sales revenue comes from electrical power companies that use their systems to better monitor the operations of their substations. They are also growing sales to railroads.

The research indicates that the company has a market capitalisation of $263.4 million which puts it on the cusp between microcap and small cap status. There are just over twelve million shares outstanding and over the last three months the average daily volume has been 14,423. Over the last 30 days of trading volume has exceeded the average only nine times. What I would surmise from the low volume is that the stock is closely held by management and patient investors who have been in profit since the IPO at $13.00 back in 2007.

Another factor to consider are the earnings. RCM has missed the street over the six quarters going back from Q3 FY11 and is scheduled to report Q1 FY12 on August 05, 2011. The forecast is for earnings per share of $0.20. The last thing to consider is the aggressive multiples on the stock. It has a price earnings ratio of 43 which implies anticipation of expanding growth. Clearly the company has been growing its sales and profits but perhaps not to the total satisfaction of investors.

Lets examine the charts for guidance as we move forward.

The three year chart illustrates the resistance $22.00 that RCM has failed to break above since August of 2009. When the company reported its Q4 results May 25, 2011 the results were not sufficient to push through the barrier.

The six month chart outlines the resistance at $22.00. The MACD signalled the sell off that started in mid February that took the stock down to $18.00. It also signalled a buy in late March that took the shares back to $22.00. Not a bad round trip for investors who caught the ride. Currently the indicators are flat.

The next flex point will come in August with the Q1 results so put that date on your calendar. RCM is a stock that is tightly held by patient investors and which has a small number of shares outstanding. The low volume of trading is not a factor given that reality. If the shares make a sustained move above $22.00 it can run to $26.00 without much resistance.

Happy Capitalism!

 

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