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Small-Cap Star Axcelis (ACLS) Could be Priming for Big Gains

Shares in Small-Cap Star Axcelis Technologies (ACLS) rose 4.35 percent on Tuesday following the revelation that the company’s director, Stephen R. Hardis, had purchased an additional

Shares in Small-Cap Star Axcelis Technologies (ACLS) rose 4.35 percent on Tuesday following the revelation that the company’s director, Stephen R. Hardis, had purchased an additional 30,000 shares on May 19. The stock opened down and lost ground in the early going, but it jumped onto a rally by the broader markets in the late morning and rode that without getting caught up in the subsequent sell-off that hit stocks at around noon eastern.

Stock Market Action Carries Axcelis Higher, But Doesn’t Drag it Lower

Axcelis opened about even and then fell as far as $1.56, representing a 2.5 percent loss. However, around 10 am, the broader markets rebounded from early losses and the rising tide appeared to carry Axcelis with it, pushing the stock to an intraday high of $1.75 a share.

However, while the Nasdaq managed to rally to even before a hard slump from noon to 2 pm ET that had it losing more than 1 percent at its lowest point, Axcelis appeared to ride the initial wave without getting pulled back out to sea after it crested. Shares closed at $1.68 each, a 4.35 percent gain.

A Victim of the Great Small-Cap Sell-Off of 2014?

Axcelis; which makes and services ion implantation, dry strip and other processing equipment used in the fabrication of semiconductor chips; has had a rough year thus far. It’s off more than 30 percent in 2014.

However, it’s hard to pinpoint a single motivation for this selling binge among its investors. The company’s continued receiving orders, including one for its Purion M medium current implanter from the second-leading chip manufacturer in Asia.

What’s more, Axcelis has posted five-straight quarters of rising revenues and of rising gross operating profits. So why is Axcelis getting hit so hard?

The answer may come in broader market trends. Small-cap and growth stocks are down on the whole, with investors shedding risk since the start of March. Axcelis, with a market cap just over $185 million, clearly qualifies in the realm of the sort of riskier growth play that has been especially unpopular of late. As such, it's possible that much of the negative momentum surrounding the stock is coming from this trend rather than the company itself.

Rough Year For Axcelis a Buying Opportunity?

However, if Axcelis has fallen victim to broader market trends that aren’t focused on the stock’s fundamentals, could that mean the stock has potential to grow?

For starters, its inclusion in the Small-Cap Stars means its fundamental data correlates strongly with other successful small-cap companies in its industry. And in Axcelis’ case, it represents one of the highest scores among the Small-Cap Stars technology companies.

Axcelis hit on all of the metrics the system found to be most-indicative of future success. Revenues in 2013 were significantly above the median for the industry, its enterprise value to EBIT and EBITA ratio was strongly positive, and the company had a much higher than average non-cash working capital as a percentage of revenue. What’s more, the company’s cash as a percentage of its total assets is very low, a sign that it’s spending its cash on expansion rather than sitting on it, precisely as a growing small-cap tech company should be.

Taken collectively, these factors mean that Axcelis is a company that’s got a lot in common with previous winners in its industry, and the likelihood of it finding success in the future is probably higher than many of its competitors.

Secondly, it’s worth noting that the company still sports a high level of institutional ownership. Over 55 percent of its shares are held by major institutions, and the last three months have seen that increase another 6 percent despite the losses, a sign that the major players on Wall Street haven’t been shaken by the recent decline in share price.

DuPont Analysis Shows a (Potentially) Strong Stock

Finally, a DuPont Report of the company points towards real promise. The DuPont System for stock analysis breaks return on equity (ROE), a key metric for determining a company efficiency in turning resources into returns, into three components to get a better picture of what the metric really means.

And in Axcelis, the company appears to feature strong metrics across the board. Most notably, Axcelis sports a better net margin than its competitors by a wide margin, one of the strongest indicators of future success. So not only is Axcelis ahead of the industry average on ROE, that number is being driven by strong net margins, the strongest way to post a strong ROE.

Add to that the fact that net margin and ROE both trended up from 2012 to 2013 and Axcelis appears ready to rebound. If Axcelis is really a strong company that’s being unfairly punished by the market because of an industry-wise slump, there’s reason to believe that it could bounce back with strength. The stock's MACD line crossed its signal line on Friday, a traditional buy signal, potentially indicating that things are starting to look up for Axcelis.

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