Wednesday’s TSX breakouts: This oversold stock is attracting insiders

Tthere are three stocks on the positive breakouts list, one of which is Progressive Waste Solutions. On Tuesday, this stock rallied over 10 per cent on news that it was being acquired by U.S. based-Waste Connections. This is a stock that was featured on the TSX breakouts file on Jan. 11.

The list of negative breakouts is sizable at 95 names; however, the weakness remains concentrated in two sectors – energy and materials. Of the 95 stocks listed, 39 per cent are from the energy sector, and 29 per cent are from the materials sectors. These two sectors account for 68 per cent of the names breaking down.

Discussed below is a small-cap industrial stock that is technically oversold. Several insiders are scooping up positions on the stock price weakness. That stock is DIRTT Environmental Solutions (DRT-T).

Calgary-based DIRTT Environmental Solutions (the acronym stands for Doing It Right This Time) designs, manufactures and installs customized interiors serving industries such as health care, education and energy. The company's services provide consumers with customized construction at a reasonable cost and in a quick time frame. Most projects, approximately 80 per cent, are renovations, not new builds. Sales are generated through distribution partners.

On Nov. 3, the company reported third-quarter results after the market closed. Financial results were solid and the stock price rallied 16 per cent the following day. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $11.2-million, surpassing the Street's expectations of $6.7-million. Morgens Smed, the chief executive officer stated, "We generated record quarterly revenue without a meaningful contribution from larger contracts, which speaks to the growing strength of mid-sized projects which form our core business, the overall diversity of our customer base, and the value we can offer over traditional construction."

Stocks with exposure to the oil patch are under pressure, and this includes shares of DIRTT. At the start of 2015, approximately 20 per cent of clients were from energy related segments, and this has investors concerned.

Dividend policy

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

Insider transactions

Three insiders have been accumulating shares. On Jan. 19, Christine McGinley, who sits on the Board of Directors, purchased 975 shares at $6.06. On Dec. 7, two other Board members, Lawrence Fairholm and Wayne Boulais, purchased 1,000 shares and 3,400 shares respectively.

Valuation

The multiple has contracted significantly in recent weeks and currently trades at a price-to-earnings (p/e) multiple of 20.5 times the 2016 consensus earnings estimate. To access the downside risk, the stock traded at a p/e multiple of 15 times at the beginning of 2015.

Analysts' recommendations

According to Bloomberg, there are six analysts with buy recommendations, and one analyst with a hold recommendation. There are no sell recommendations. The average one-year price target at $8.86, implying the stock price return of over 50 per cent. Price targets range from a low of $7.50 to a high of $9.50. Individual price targets are as follows: $7.50, $8.50, three at $9, and two at $9.50.

The consensus EBITDA estimate is $30.5-million in 2015, rising 46 per cent to $44.6-million in 2016. The Street is forecasting earnings per share to soar 70 per cent to 28 cents in 2016, from expectations of 16 cents in 2015.

Technical analysis

Shares are under pressure, declining over 17 per cent year-to-date, and falling below key support levels (the 50-day and 200-day moving averages). However, the share price remains above its August 2015 low of $4.88. If the stock breaks below this level, the next area of support is around $4.

The relative strength index is at 29, suggesting an oversold condition. Generally, a reading at or below 30 indicated an oversold condition.

As always, I strongly encourage readers to consult a financial advisor, and to do their own proper due diligence before taking any investment action.

Below is a list of stocks in 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. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.