Thursday, February 9, 2012

RSYS: A lotus in the mud

RadiSys Corp. (RSYS) is one of those tech infrastructure company that makes electronic stuff that other companies use in their business. It had the most bullish chart of 20 stocks added to the Zacks top buy list today.

RadiSys, based in the western suburbs of Portland, Oregon, is like the lotus blossom -- a lovely flower that grows from the muck and mire. Its chart is a shambles from a distance that resolves into an orderly uptrend close up. Its financials have scratches and dents, yet RSYS manages to turn a profit quarter after quarter.

Sadly, when it comes to companies like RadiSys, I rarely understand what it is they really do. To quote from the Reuters profile, RSYS "is a provider of hardware and software platforms for Next Generation Internet Protocol (IP)-based wireless, wireline and video networks."

OK! Sounds so cool!! I think it has something to do with this.  Or maybe this. Probably not this.

Oracle-of-Omaha Warren Buffet refuses to buy a stock in a company that he doesn't understand. I'm no Warren Buffet. As a momentum trader, my positions tend to be short term. I don't really need to know what a company does. I just need to know its price trend.

RSYS gapped up sharply on Feb. 1 after an earnings report that beat analysts' estimates. Rather than losing 6.8 cents a share, as the soothsayers had predicted, RSYS turned a profit of 5 cents a share.

So the price gapped, rested for five days, and then turned in a large intraday rise today.

In the longer term, the stock hit a pre-recession high of $17.48 in November 2007, then fell in two stages to a recession low of $4.01 a year later

The recession was unkind to tech companies, which have actually been living in an unkind world since the tech bubble of the 1990s burst. RSYS has been in a very long term decline since reaching its all-time peak of $65.75 in March 2000.

But such a long term decline has rises and falls of huge magnitude within it, and there is money to be made from the shorter-term trends.

From its recession low, the price attempted a recovery, but only managed a lower high of $11.00 in April 2010, before falling again to $4.01 last December.

But from that low, the price has risen steadily to today's high of $8.07 -- an impressive doubling in just a couple of months.

Financially, RSYS still looks like a start-up, with a 3% loss on equity. The debt/equity ratio, however, is 0.27 -- that's far from crippling and leaves the company with much flexibility in dealing with the slings and arrows of outrageous fortune.

Institutional ownership is fairly high, at 73%. And the price is still cheap. It takes only 62 cents worth of stock to control a dollar's worth of sales.

RSYS is  liquid, but not highly so. The average volume is 201,000 shares a day, and the March options only have four strike prices, with open interesting standing at low to none.

Also, where the price is so low -- single digits -- I find options to be too pricey relative to returns for my taste. My vehicle of choice for RSYS is shares.

The next earnings announcement is scheduled for April 30.

Decision for my account: I bought shares today in RSYS.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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