Friday's TSX breakouts: Stock with seven unanimous ‘buy’ calls and 31% upside forecast

Today, we could finally see some movement in North American equity markets, but not until after investors hear what U.S. Federal Reserve Chair Janet Yellen has do say during her speech at the Jackson Hole economic symposium. Investors will be watching for clues surrounding the timing of future rate increases by the Fed. The probability of a September rate hike has been steadily climbing higher. This morning, before Yellen's speech, futures are pricing in a 32 per cent probability, which is up from just 8 per cent on July 25.

On Thursday, North American stock markets were relatively unchanged with investors unwilling to trade ahead of her speech.

In the U.S., the Dow Jones Industrial Average fell 0.18 per cent, the S&P 500 Index declined 0.14 per cent, and Nasdaq composite slipped 0.11per cent.

In Canada, the S&P/TSX composite index gained 4 points, or 0.03 per cent, to close at 14,631. There were 128 securities in the Index that advanced, 105 securities declined, and seven stocks closed the day unchanged. The Index is up 0.33 per cent month-to-date, up 4.03 per cent quarter-to-date, and has a gain of 12.46 per cent year-to-date.

On today's Breakouts Report, there are 32 securities on the positive breakouts list (stocks with positive price momentum) and 18 stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that appeared on the positive breakouts list at the beginning of the month. However, since then, the stock price has dropped 10 per cent. There are seven unanimous "buy" recommendations on the stock with the average one-year target price suggesting a 31 per cent return over the next 12 months. If analysts are correct, this is a security to put on your radar screen as this stock may resurface on the positive breakouts list in the future. The security I am referring to is TIO Networks Corp. (TNC-X).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The Company

TIO Networks is a cloud-based technology company operating in the bill payment industry.

Before the market opened on June 28, the company reported third-quarter financial results for fiscal 2016 (the company's fiscal year-end is July 31). The company reported revenue of $17.9-million, up 32 per cent year-over-year, and ahead of the consensus estimate of $16.7-million. Organic revenue growth was an impressive 25 per cent year-over-year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $2.9-million, up from $1-million reported during the same period last year, and well above the Street's forecast of $1.8-million. The share price rose 5 per cent that trading day, and jumped another 13 per cent over the following three trading sessions.

During the second quarter, the transformational acquisition of Softgate Systems Inc. was finalized. In the company's third-quarter Management's Discussion and Analysis, management stated, "With the addition of Softgate, TIO now has an augmented national platform from which to provide extensive non-bank financial services to the unbanked, under-banked, and unhappily banked millennial population." This acquisition is anticipated to be accretive with management expecting an annual EBITDA contribution of at least $5-million (U.S.). In addition, management expects to realize tax savings from Softgate given the company's substantial net operating losses.

Dividend Policy

Management is focused on growth, and as a result, the company currently does not pay shareholders a dividend.

Valuation

Many analysts value the stock on an enterprise value-to-EBITDA basis. The average one-year target price is $2.85, implying there is 31 per cent upside potential in the share price over the next 12 months. Individual target prices are as follows: four at $2.50, $3, $3.25, and $3.35.

Analysts' Recommendations

According to Bloomberg, there are seven analysts who cover this stock and all seven have "buy" recommendations.

The consensus revenue estimate is $77-million in fiscal 2016, and forecast to rise over 50 per cent to $117-million in fiscal 2017. The Street's EBITDA forecast is $10-million in fiscal 2016 and anticipated to rise to $16-million in fiscal 2017, fuelled higher by the acquisition of Softgate Systems. Analysts have been revising their EBITDA estimates higher. At the start of this year, the consensus EBITDA estimate for fiscal 2016 was $9-million and the forecast for fiscal 2017 was $14-million.

Chart Watch

This small cap technology stock, with a market capitalization of approximately $189-million, can be volatile and the share price can experience significant daily moves. For instance, looking at the past week, the share price fell 4 per cent on Monday but rose 4 per cent on Thursday.

Year-to-date, the share price relatively unchanged, down 3.6 per cent; however, on August 10, the share price was up nearly 8 per cent year-to-date – again, volatility can be high.

In terms of liquidity, the historical two-month average daily trading volume is just under 130,000 shares.

Looking at key resistance and support levels, there is initial overhead resistance around $2.25, near its 50-day moving average (at $2.27), and after that, there is resistance between $2.40 and $2.50 (its recent closing high was $2.42). Turning to downside support, should the share price pullback, there is strong initial support at $2, which is close to its 200-day moving average (at $1.95).

On Wednesday, the shares were in oversold territory with a relative strength index reading of 29. However, the stock price sprung back on Thursday, rising 4 per cent and with it, the relative strength index rose to 39, suggesting the shares are no longer in oversold territory . Generally, a reading at or below 30 indicates an oversold condition.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities principally from the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.