MagicJack VocalTec Ltd. (CALL) on Wednesday reported a fourth-quarter loss of $1.3 million, after reporting a profit in the same period a year earlier, and at first look most traders would look elsewhere. But I looked at the price action in MagicJack (CALL) and see the company making moves prepping for a sale. So, lets look at when and how much.
On a per-share basis, the Netanya, Israel-based company said it had a loss of 8 cents. Earnings, adjusted for stock option expense and non-recurring costs, were 14 cents per share. The internet phone company posted revenue of $23.8 million in the period. For the year, the company reported profit of $5.7 million, or 35 cents per share. Revenue was reported as $97.4 million.
MagicJack shares have risen 18 percent since the beginning of the year. In the final minutes of trading on Wednesday, shares hit $8.10, a fall of 6.5 percent in the last 12 months, and this is a cash machine. If you know the product you know they have an inexpensive VOIP that allows customers to have a landline, and they can buy it at Walmart. The next logical step is to do this for Mobile.
MagicJack already has a solution which will drive pricing much lower and create the mobility needed so consumers can by-pass the tower and tap into any wireless. This is not a perfect solution, but if you don’t want to spend $75 bucks a month you can do what customers who bought the original MagicJack did – save money. Price point and reclaiming some market share drives share prices and (CALL) has a $100m run rate (annual top line revenue).
All said, I think the company (currently trading $8-ish) will be purchased for $10 -$12 p/s and may wind up going private. I know what I see, and it is not a mistake that the stock is up 18% YTD. The team at Equities Research saw a bottom coming during 2016. This is classic capitulation as the larger portfolio managers who owned shares exited 1 year ago today. Let them remain unnamed, but a new player is in the game now, and if you read the string of releases and filings you can see the BOD arranging the pieces to sell the company.
And they should sell the company. In fact, I will not be surprised if they are taken private and own the $100 million dollar run rate in an era where you can fill a gap to provide service filling the same gap you filled in 2010 when MagicJack shares went from $8 to $25.
In a year and one half, starting in January 2010 the stock was a triple. The more things change – the more they remain the same.
The way you tell your right is when the stock makes a new high through $8.25 on a closing basis, go ahead and buy the crap out of this stock all the way up to $8.75 and then stick it in your desk drawer and wait for the announcement that they have a buyer, or are in play. I don’t think these shares ever see a 6 handle again, but if they do sell half.
The hard part about trades like this is you must buy them into strength, which is hard to do, and it will also be tempting to over think the reason the stock should go lower. The best thing to do is put in your sell order at $11. The risk reward is not great at 2-1, but I think you can sit and watch once you own some shares.
I may be wrong, it may be bought for $14 or above which (in hindsight) makes the risk easier to swallow. But the point is – in any trade – go in with a plan. Have an opinion – all stock market success is about taking and managing risk.
Equities will be launching our Trade Platform in coming weeks (I saw it – it is really cool) and we will be talking more about how to approach risk. We have no position in MagicJack (CALL) and we are not paid by the company. Our EQ Research Group reviews technical patterns to find trading opportunities and leans on our 50+ years of experience trading US Small and MicroCap Markets. Thank you for reading. Please follow us below.
Cover photo attribute PixaBay via Literary Traveler
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