Thursday’s TSX breakouts: A stock with 8 unanimous ‘buy’ calls and a 30% upside forecast

It is a quiet day on the economic front in Canada with no major releases. In the U.S., key economic reports released today are durable goods, jobless claims, and pending home sales.

In terms of earnings releases, there are 12 companies in the S&P/TSX composite index that are reporting third-quarter financial results today among the earnings parade are Teck Resources, Potash, Husky Energy, MEG Energy, Cenovus Energy, First Quantum Minerals, Eldorado Gold, and Yamana Gold.

To recap, on Wednesday, the S&P/TSX composite index lost 63 points, or 0.42 per cent to close at 14,808. There were 81 securities in the TSX Index that advanced, 162 securities declined in value, and four stocks closed the day unchanged.

The S&P/TSX composite index is up 0.55 per cent month to date, and up 13.82 per cent year to date.

On today's TSX Breakouts report, there are 18 securities on the positive breakouts list (stocks with positive price momentum) and 28 stocks on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is just below the screening criteria with a market capitalization of $193-million (below the $200-million threshold). While it is below the TSX Breakouts report radar, it is on analysts' radars with coverage from eight firms - all of whom have 'buy' recommendations. The stock 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 provides technology used to process bill payment transactions. The company's fiscal year end is July 31.

Before the market opened on June 28, the company reported third quarter fiscal 2016 financial results. Revenue was $17.97-milion, up from $13.57-milion during the same period last year, and beating the consensus estimate of $16.65-million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $2.88-million, up from $1.35-million in the previous year, and ahead of the Street's forecast of $1.81-million. The share price rallied 5 per cent to $2.12 from $2.02.

According to Bloomberg, for the past four quarters, the share price has rallied materially the day it reported its financial results, increasing between 4 per cent and 14 per cent. The stock can have volatile moves given its low liquidity. Its two-month historical daily average trading volume is approximately 91,000 shares.

The company is anticipated to report its fourth-quarter fiscal 2016 and fiscal year-end results in November. For the fourth quarter, the Street is forecasting revenue of $27.16-million, EBITDA of $3.05-million, and earnings per share (EPS) of 2.5 cents.

On Oct. 18, the company announced it completed the first phase of the integration of its recent acquisition of Softgate Systems Inc., an acquisition completed in April. Management is forecasting the company will realized at least $6-million of synergies, expressed in U.S. dollars.

Dividend policy

The company does not pay its shareholders a dividend.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings multiple of 18 times the fiscal 2017 consensus estimate. After the company reports its fiscal 2016 year-end results next month, the stock's valuation will roll forward to fiscal 2018.

Analysts' recommendations

This small-cap technology stock is covered by eight firms. These six firms in alphabetical order are as follows: Beacon Securities, Canaccord Genuity, Cantor Fitzgerald, Cormark Securities, Haywood Securities, Industrial Alliance Securities, Paradigm Capital, and PI Financial Corp. There are unanimous 'buy' recommendations.

Target prices range from a low of $2.50 to a high of $3.35, implying upside potential ranging from 13 per cent to 51 per cent. Individual target prices in numerical order are as follows: three at $2.50, $2.75, two at $3, $3.25, and $3.35. The average one-year target price is $2.89, implying there is 30 per cent upside potential over the next 12 months.

The consensus revenue forecast is $77-million in fiscal 2016, rising 49 per cent to $115-million in fiscal 2017. The Street is forecasting EBITDA of $10-million in fiscal 2016, climbing to $16-million in fiscal 2017. The Street anticipates the company will report EPS of 10 cents in fiscal 2016, increasing to12 cents in fiscal 2017.

These forecasts have been relatively stable over the course of this year, with minor positive revisions to fiscal 2017. As of January 1, 2016, the consensus revenue estimate was $80-million for fiscal 2016 and $109-million for fiscal 2017, the Street forecast EBITDA of $9-million in fiscal 2016 and $14-million in fiscal 2017, and the consensus EPS estimate was 8 cents for fiscal 2016 and 11 cents for fiscal 2017.

Chart watch

Over the years, the share price has a pattern of rallying, followed by a consolidation period, before resuming its uptrend. Right now, the share price appear to be consolidating in the low $2 range. Year to date, the stock price is relatively unchanged, down 1 per cent.

In the near-term, the share price could drift back down to the $2 level, close to where its 200-day moving average lies (at $2.02).

There is significant overhead resistance at its August 2016 closing high of $2.42, and after that at $2.50.

===

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.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

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