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Posts Tagged ‘small cap stocks’

Disclaimer: Do your own research prior to making any investment/trading decisions. You must assume I am biased with every idea presented on this website.

Hypercom Corporation is a provider of electronic payment and transaction solutions and services at the point of transaction. The Company offers electronic transaction solutions through a suite of electronic transaction products and software, and a range of support and maintenance services.

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HYC is currently trading at a market capitalization of approximately $208mm with 55mm shares outstanding. See the Google Finance description HERE.

I found HYC by running a proprietary screen I developed on the website FinViz. What I was initially looking for was momentum with both insider and institutional buying. According to FinViz, HYC has both with 10%+ insider ownership and 48%+ institutional. Another important factor was to find a stock whose underlying company would experience significant benefit from a continuing recovery in consumerism. HYC’s business is in securely handling financial transactions so that was dead-on.

Once I had completed the screen and received my universe of stocks, I looked through the charts to see where the momentum was. HYC’s six-month daily chart showed up immediately as having solid price action following a recent breakout above $3.50/share. In addition the price has shown a pattern of quiet accumulation over the past week or so as the price has risen 10%+ with barely more than 250k shares traded on the highest two days. From where I sit, the path of least resistance is upward toward $5.00/share (which is also where options and warrants are exercisable – click HERE, see Notes to Consolidated Financial Statements).

Then I dug into the financials a little. As of their most recent 10Q (September 2009), HYC had approximately $51mm in cash with $83mm in accounts receivable. This compares to $127mm in current liabilities. Put this together and in the short term, HYC has sufficient liquidity with a quick ratio in excess of 1.0. One key positive about HYC was their ability to yield net cash from operating activities of $17mm+ for the nine months ended September 2009. This allowed them to increase their cash position by $15mm+ over those nine months.

From a qualitative standpoint, the company serves their customers on an ‘end-to-end’ basis, from the transaction’s initiation device to the data transport and processing. A large draw for customers is the level of security offered. As the internet becomes more relevant in peoples’ everyday lives security is becoming a larger and larger issue. The companies that offer enhanced security options will succeed. Some of HYC’s customers include household names such as McDonalds, Bank of America, Dominos Pizza, CVS, Ikea, and Bose.

Below are two charts. The first is a six-month daily and the second is a two-year weekly. The daily chart is showing solid, upward momentum. On the weekly chart, the $5.00 level is the next real level of resistance. Until then it looks like the path of least resistance is to continue upward.

Date of Idea: January 18, 2010

Price at Idea: $3.79

Target Profit Exit: $5.00

Loss Exit: $3.25

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