Enghouse Systems Ltd. in the grips of a selloff

Apr 1st, 2016 – 1 Comment

Little evidence that a reversal of the downtrend is at hand.


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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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ESL LOGO

Hi Lou,

Could you please have a look at Enghouse Systems, share price has fallen off a cliff since the 52 week high in December with no signs of improvement since. I’m still holding but barely.

Thanks !

Mario

 

Hey Mario,

Thanks for the assignment. This will be the first time that I take a snapshot of where Enghouse Systems Ltd. (ESL TSX) finds itself. The company offers software and services through two divisions, asset management and interactive .

ESL is pursuing strategic acquisitions, and managed growth. What might have contributed to the pullback from the late December 2015 highs was a sentiment on the street that the valuation was getting ahead of itself. Revenue growth over the last three years averaged 27%  while the industry registered 33.67%. Earnings growth at the company over the same period was 13.44% while the industry a clocked in at 20.63%.

When I consider an investment in a technology play I know that its based on expectations of continued growth. A high multiple stock with a low or no dividend payout has to deliver every quarter to keep investors in their chairs.

A probe of the charts will help you in deciding how to proceed.

 

 

ESL

The three-year chart indicates that ESL topped out at the 52-week high $77.54 in late December of 2015 after a monster run that started seven years earlier when the shares were trading near $4.00.

The retreat that has endured into 2016 has seen the stock breach support along the uptrend line and the moving averages. In addition a death cross formed in March of 2016 putting investors on alert that selling had not yet abated. Finally it should be noted that ESL caught a ledge of support near $50.00.

If ESL doesn’t hold at $50.00 it may have to retest support near $40.00.  As an owner you have to decide what could spark a move higher.

 

ESL2

The six-month chart pulls into focus the sell signals generated by the MACD and the RSI in December of 2015 as the stock retreated from the highs. Also evident is how the shares moved out of an overbought situation and the resistance that has come in along the moving averages on the retreat.

At this point the best case would be for base building to continue near $50.00 but there is little evidence at this time that we can expect a reversal of the downtrend.

Next time I will look behind the curtain at Cineplex Inc. (CGX TSX) on a request from Jerry.

 

 

Make it a profitable day and happy capitalism!

 

 

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