Emerging growth companies are typically smaller in size, making them more prone to volatility and bigger stock moves than one would normally see in mid-cap or large-cap players. As such, looking for signs in technical data can be fruitful if it means finding the right time to invest in the right company. Clearly, getting a stake in a solid up-and-comer is typically good at any point, but finding those companies on the verge of a potential breakout can only improve that.
As such, here’s a look at three promising emerging growth tech companies that are currently in a bullish wedge down pattern that frequently portends a strong reversal. What’s more, each of these companies features a 14-day RSI that would point towards them being potentially oversold or very close to it.
There’s certainly no guarantee that a reversal is coming for any of these companies, as these signs, while generally reliable, frequently don’t play out as expected. And, as always, investing in companies at such small market caps can carry a lot of inherent risk. That said, each of these tech firms has some real potential that, if realized, could make for a lot of success.
LivePerson uses chat through a cloud-based platform to help businesses connect with their customers, saving money over telephone service and also offering a mobile platform that can help companies connect more directly.
The company is down about 70% off of its peak in 2012 and has lost nearly half its value over the last year. However, there are signs that the company may be about to hit its floor and then bounce. The company’s chart shows a distinct downward wedge pattern. It recently appeared to break hard below its support levels, but that may have as much to do with the dreary start to the year for most stocks as it does LivePerson.
Meanwhile, analysts covering the stock have price targets ranging from $8 to $14, all well above its current price of just under $6. It still boasts a gross margin in excess of 70% and revenue has grown steadily since 2010. Add to that a 14-day RSI that’s currently under 30, and it appears possible that LivePerson could be on the verge of a breakout should markets shake off some of their early-2016 swoon.
There’s always the possibility that the current breakout downward will hold, but there’s a lot of signs indicating the opposite may be more likely.
Points International (PCOM)
Points International is in the business of helping companies build their loyalty programs to maximize customer retention. Since clearing $30 a share in 2014, the stock has been beaten up pretty badly, slumping over 75% to its current price of about $7.50 a share, including shedding about a third of its value over the last 12 months.
However, there are some clear signs that this beating in the public markets is a bit excessive and nearing its end. For starters, revenue growth has been strong, particularly in 2013 and 2014, when it grew from about $140 million annually to over $250 million. It also features a number of price valuations that would make it appear a very promising stock. Its PEG is just 0.84, its price to sales has dipped below 0.5, and its forward P/E is a touch over 12.5.
Certainly, the risk of the stock being a value trap is very real, and like LivePerson, it appears to have broken out of its downward wedge pattern in the wrong direction along with the market swoon to open 2016. However, the company is also anticipating significant growth in earnings and sales next year and over the next five years. Not to mention, the average price target from analysts is over $20 a share, making its current price notably low if they’re right.
Finally, with a 14-day RSI under 30, the stock appears to oversold and ripe for a rebound. It may be foolish to anticipate a strong reversal of a downtrend that can be dated back to the spring of 2014, but there are plenty of signs indicating it could be coming.
Travelzoo is a media company that keeps its readers apprised of a wide variety of travel and entertainment deals from over 2,000 companies. Like the first two companies discussed, Travelzoo has had a rough go of it of late, losing about a third of its value over the last year and two-thirds over the last two years. Unlike the first two, it hasn’t been consistent in revenue growth with a step back in 2014.
However, the company also appears to have a lot going for it. For starters, its current price could be a real bargain. Its P/E ratio is under 10, PEG is under 0.5, and P/S is just over 0.75. Not to mention, its nearly 40% ROE is very promising.
Throw in the 14-day RSI that’s just over 30 and a notable downward wedge pattern and there does seem to be plenty of reason to see a brighter future for Travelzoo than what its experienced the past two years.
Bullish Indicators Could Mean Good Things
There are, of course, no guarantees that any of the stocks will halt their decline, let alone break out, but oversold stocks in a downward wedge pattern are frequently due for a bounce back. Ignoring the reasons why investors have turned sour on these stocks wouldn’t be prudent, but examining whether or not these respective sell-offs have pushed prices too low could uncover some real buying opportunities.
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