Wednesday’s TSX breakouts: This company’s strong cash balance provides comfort to a 4.5% dividend yield

On Tuesday, the S&P/TSX composite index lost some of its recent positive price momentum, declining 39 points, or 28 basis points.

There were 96 stocks that advanced, 143 securities declined in value, and just one stock was unchanged. Year to date, the TSX Index is up a respectable 9.3 per cent.

One area of continued strength is gold. The price of gold is rallying this morning while equity markets around the world weaken.

On today's Breakouts Report, there are 70 securities on the positive breakouts list (stocks with positive price momentum), 25 of which, or 36 per cent, are gold stocks. Meanwhile, the list of securities on the negative breakouts list (stocks with negative price momentum) has grown to 10 securities.

Discussed today is a stock in the technology space that offers shareholders a 4.5 dividend yield, Absolute Software Corp. (ABT-T). Also attractive is the company's large cash balance. The company reported cash and equivalents of $53.4-million (U.S.) in its fiscal third quarter, or over $1.70 per share (Cdn.) of cash on their balance sheet, which is subject to fluctuations in the exchange rate.

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

The company

Absolute Software is a provider of security and data risk management solutions to organizations, enabling businesses with greater control of their technology devices. This technology is embedded in devices such as computers, tablets, and smartphones of companies such as Acer, Dell, HP, Lenovo, Samsung, and ASUS.

In May, the company reported third-quarter fiscal 2016 financial results that were better-than-expected. As a result, the share price increased 3 per cent that trading day. The company reported revenue of $21.7 million (U.S.), in-line with the Street's expectations. However, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $2.8 million, surpassing the consensus estimate of $2.6 million.

Dividend policy

Management has been committed to its dividend, announcing increases each October since 2013.

The company pays shareholders a quarterly dividend of 8 cents per share (Cdn.), or 32 cents on a yearly basis. This equates to an annualized yield of 4.5 per cent.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 1.8 times the consensus fiscal 2018 estimate, which is below its historical three-year average of 2.2 times.

Analysts' recommendations

According to Bloomberg, there are eight buy recommendations, one hold recommendation, and there are no sell recommendations.

The one-year price target is $9.13, which suggests the share price may appreciate 27 per cent over the next 12 months. Eight of the nine firms have reported target prices, which are as follows: $7.50, $7.88, $8.50, three at $9, $10.50 and $11.

According to Bloomberg, the Street is forecasting revenue of $89-million (U.S.) in fiscal 2016, $93-milllion in fiscal 2017, and $101-million in fiscal 2018. The consensus EBITDA forecast is $11.5-million in fiscal 2016, relatively stable at $11.4-million in fiscal 2017, and forecast to rise to $17.3-million in fiscal 2018.

Chart watch

The share price of this small-cap stock, with a market capitalization of nearly $280-million (Canadian), has been in a downtrend for over a year, since the first half of 2015. Year to date, the stock price is down 3.6 per cent. However, in recent months the share price has been slowly strengthening, making higher lows.

On Tuesday, while the majority of stocks in the S&P/TSX composite index were declining, the share price of Absolute Software actually rose 1.7 per cent on high volume. Over 266,000 shares traded, well above the two-month average daily volume of approximately 90,000 shares.

The stock is approaching initial overhead resistance around $7.50. After that, there is resistance at $8, and then at $8.50.

The stock has initial downside support at $7, and failing that at its 50-day moving average, which is at $6.74. There is large support at $6.

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.