Momentum Stock: MagicJack (VocalTec Ltd)

Zacks Investment Research
updated | Zacks.com

MagicJack(CALL)sold over 365,000 of its new MagicJack Plus devices between November 20th and December 20th.  They are estimating 4q sales to come in around 55-60 million units, which would make for a very strong quarter.  They also recently cancelled a secondary stock issue, which tends to be bullish as offerings dilute the existing shares.  In addition, MagicJack also recently announced a share buy-back program.

If you have an appetite for a more volatile stock, CALL may one to look at.  Normally I would never bring a stock with low volume like this to the table. But sometimes it doesn’t hurt to catch stocks before they become popular.  Aside from the positive sales projections from the company, consumers these days are gravitating to technology that lowers costs such as their MagicJack Plus product.   This could prove to add a positive surprise to their results at the end of the month. 

Volume is definitely on the low side, which creates added risk.  Generally it’s a smart idea to scale back investments in any stock that trades volume below 500,000 shares per day on average. This stock certainly fits that description.

While the company may be a one trick pony, investors seem to be riding this horse as of late, with momentum looking to continue into the earnings coming in late February-March (est)

 

Company Description

MagicJack VocalTec Ltd. is a provider of carrier-class voice over Internet protocol (VoIP) and convergence solutions for fixed and wireless communication service providers. They are the makers of MagicJack and MagicJack Plus, which you may have seen advertised on TV.

Their latest product is a hit with both consumers and with investors in the stock. Shares have been trending higher for the past five months after consolidating around the $9.50-$10.00 level in late July, early August.

Financial Profile& Earnings

MagicJack is trading at about 37 times earnings, with a forward p/e projection of 13.34 as sales are expected to grow.  Last quarter, they generated 3.91 million in income and earned .17 per share.  Last quarter’s earnings surprised estimates by 13.33%.  They are expected to lose .09 cents this quarter,  but swing back to strong earnings per share growth over the next year.

MagicJack ended the quarter with assets of $114 million against total liabilities of $106 million.

The financials are certainly not perfect, but with strong sales, supportive news and updates as well as a strong technical channel, CALL qualifies as a momentum stock and could see further upside. 

Estimates

We did see a little bit of movement in estimates off the good quarter, with the current year adding 4 cents in the last few months to $1.64. The next-year estimate is up 3 cents in the same time to $1.83, a solid 12% growth projection.

Market Performance

Over the past 12 weeks, CALL has exceeded the S&P 500’s performance by 16% with a price jump of over 21%.  With a Beta of .99, it tends to be closely correlated with the market.  The fact that this stock has been breaking out of this correlation trend is a bullish sign and perhaps proves that smart money may be moving into CALL.

12-Month Chart

On the chart, shares have been rallying since rallying since August after bottoming out during the market downturn and before the release of their latest product.  The stock is no doubt volatile, but for those with an appetite for a little more risk, look for support around the 50 and 200 day moving averages of $12.20 and $11.20 respectively. 

Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.

 

 
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