This share price of this stock has made a V-shaped recovery. After plunging to the low $40 level in late March, it has already bounced back and on Friday the share price closed at an all-time high of $65.64.
This stock recently exhibited a bullish technical signal – a “golden cross."
A “golden cross” occurs when a short-term moving average, such as the 50-day moving average, crosses above a longer-term moving average, like the 200-day moving average. The 50-day and 200-day moving averages are both rising with the share price recently crossing above both moving averages. When this occurs, it marks a potentially positive technical signal suggesting the upward price momentum may have traction.
The stock I am referring to is The Descartes Systems Group Inc. (DSG-T).
Based in Waterloo, Ont., Descartes is a cloud-based logistics and supply chain management provider.
In early May, the share price recovered from the rapid market meltdown experienced in March. Last month, the share price traded sideways, largely between $60 and $65. If the share price can materially break, and hold, above the $65 level, the next key resistance level is around $70.
Looking at the downside, there is support at $60, and strong technical support around $55, near its 50-day moving average (currently around $55.51) and 200-day moving average (currently near $54.61).
The share price climbed to a record high in the days following the company’s release of its first-quarter fiscal 2021 financial results.
On May 27, the company reported revenues of US$83.7-million, up 7 per cent year-over-year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was US$33-million, up from US$28.7-million reported last year and above the consensus estimate of US$32-million. The adjusted EBITDA margin stood at 39.4 per cent. Earnings per share came in at 13 US cents, in-line with the consensus estimate.
The company has a healthy balance sheet with US$56-million of cash as at April 30 and an undrawn credit facility of over US$340-million, providing the company with the financial flexibility to make opportunistic acquisitions.
The company’s recurring revenue business model provides management with earnings visibility. This visibility allows management to adjust its expenses in order to maintain its financial objectives.
Management announced expected annual cost savings of between US$6-million and US$7-million arising from a roughly 5-per-cent reduction in its workforce and the closure of several offices. As a result, management was able to reiterate its target of between 10-per-cent and 15-per-cent annual EBITDA growth.
On the earnings call, CEO Ed Ryan remarked on the diversified customer base that provides the company with a certain degree of downside protection, “There [are] some businesses out there, many of them customers of ours, who've done very well over the past two to three months. Businesses involved in the manufacture and delivery of personal protective equipment and medical supplies have done well. Businesses involved in food and grocery replenishment and distribution have been very busy. E-commerce businesses have seen record holiday-style volumes as people moved to online purchases in quarantine rather than going in store. Other businesses, some of them also customers of ours, have struggled in the quarantine environment. Passenger airlines [that] move air cargo in the belly of their planes have seen passenger demand plummet. This impacts the ability to price and price of moving air cargo and mail. Retail stores and shopping malls have been temporarily shuttered, impacting not only the stores, but also the entire ecosystem that supplies and delivers to them. Customs brokers and other intermediaries have been impacted as cross-border shipments and demand becomes more complex. For Descartes, we serve all of those types of customers. Fortunately, by design, we're extremely diversified. We cover all modes of transportation, air, truck, ocean and rail so we're not fatally exposed when one mode is hit. We have a broad geographic footprint.”
This report is based on technical analysis. Technical analysis does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty