Truck stop company TravelCenters of America (TA) popped on Friday following the release of its Q1 2014 earnings results. While analysts were anticipating losses, with a Reuters consensus estimate of $0.19 a share, but the company actually posted profits of $0.01 a share after the closing bell on Thursday.
The results were immediate, with TravelCenters stock opening up 6.7% at $10.38 a share and quickly spiking to its intraday high of $10.68 a share in the first minute of trading. While that initial enthusiasm quickly waned, shares continued trading up over 8% for the day. It ultimately closed up 8.12% to $10.52 a share.
Solid Earnings Report Helps Company Rebound
TravelCenters' big day brings the company almost all the way back to where it opened 2014 at. The company had previously been tumbling after it failed to meet deadlines to report its FY 2013 numbers, a pretty troubling sign for an established company like TravelCenters.
However, the inability to file in a timely manner hasn’t appeared to be a sign of any broader issues within the company. The delayed filings stem from the calculation of a deferred tax asset in Q4 2013 that was, apparently, complicated enough to run the accounting department at TravelCenters through its paces.
But, since the company hit a 52-week a low in early May, the company’s stock has rebounded over 50%.
Solid Fundamentals
So it’s not hard to see the appeal of TravelCenters stock. Sure, operating and profit margin are razor thin, but the stock’s shown consistently strong revenues since 2010. What’s more, there’s ample reason to believe there’s a pretty solid future for the company as truck traffic is currently projected to increase.
TravelCenters inclusion in Equities.com’s 2014 Small-Cap Stars is another sign that the company’s got strong, underlying fundamentals. In particular, TravelCenters high rate of reinvestment was a sign that it has a strong chance for future growth.
And the stock’s currently pretty cheap when gauged by traditional price ratios. Small-cap companies with low profits margins are typically prone to sky-high P/E ratios, but TravelCenters comes it at a level just under (or just over, depending on how you calculate it) 10, something that likely has stodgy old value investors stroking their long white beards.
And that’s in addition to a Forward P/E of 8.65, a PEG of 0.62, a P/S of 0.05, and a P/B of 0.63, all ratios that point to a steep discount on the stock’s current share price.
Appealing Chart
If you’re looking specifically at classic technical factors for TravelCenters, there’s a distinct chance that the current pop in share price may be due to roll back some in the near future. The stock has been trading just above or just below its upper Bollinger Band since August 7, and it moved sharply above that level with today’s gains. What’s more, today’s big jump pushed the 14-day RSI to 77.73 and the 14-day stochastic RSI to 1.00, both clearly in oversold territory.
But technical factors like these are no guarantee. Stocks often continue gaining while appearing oversold, sometimes for months or longer, and the reverse is also easily true. And, in TravelCenters' case, its current chart patterns could point to continued gains.
Firstly, prior to the positive earnings report, the stock had broken through a rising resistance level that had been in place since early April. What’s more, the company’s current uptrend was forming a clear upward wedge pattern, with converging resistance and support lines. While the upward wedge is often a sign of a pending downward breakout, it can just as easily go the other way. The converging price barriers really just point to a pending change.
So, with the stock already pushing past resistance before blowing past it Friday, there’s plenty of reason to believe that TravelCenter’s stock has a real shot at continuing to make gains.
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