“There’s no mentum like momentum.” I know mentum isn’t a word but you catch my drift. When a stock is consistently hitting new high after new high there is nothing like it. The market forces of accumulation continually push a stock to levels it hasn’t seen before and shareholders are handsomely rewarded. Now find a stock that has positive momentum and a compelling earnings story during a tumultuous stock market and you have today’s Bull of the Day.
Rambus (RMBS) is a semiconductor company that has been around for a while but has fallen off most people’s radars. Rambus stock was a darling back in the days of the dot com bubble, trading as high as $135 before the bubble burst. Recently is has wallowed in the single digits until the tide turned in 2013.
The semiconductor company is best known for making royalties from DRAM licensing. Good news for RMBS is the potential for new royalty streams from Qualcomm (QCOM) and Mediatek could range from $50 to $95 million per year. This would definitely be a big shot in the arm down the road.
Rambus stock is a Zacks Rank #1(Strong Buy) and owes that rating to its recent earnings surprises. Over the last four quarters RMBS has beat by an average of 14 per share each time. Last quarter was the most dramatic with RMBS earning 12 cents versus the consensus estimate for a 1 cent loss.
The next earnings report is just around the corner, slated for April 21st. Recently, earnings estimates have been revised to the upside for the current year and next year. Current year consensus moved from a 5 cent loss to a 20 cent gain over the last 90 days. Current quarter estimates call for a 1 cent profit per share.
The price and consensus chart calls to attention a striking visual. Look at the where Rambus stock price was the last time earnings were expected to come in where they are next year. You’re looking at the $20 level when the picture was better. If the street gives us the same valuation, this stock could double.
From a technical standpoint, Rambus stock is a runaway train right now. Even in the face of a market that beat down tech and small cap over the last week or so, RMBS has managed to not only stand in but hit new 52 week highs. Higher highs coupled with higher lows makes this a great momentum play right now. The technicals may look overcooked but you will often find that in a runaway breakout stock like this. Any weakness should be seen as an opportunity to load the boat.
Taking the move from the August 2013 low of $7.95 to the recent high just below $12 you can see the support previously near the 23.6% Fibonacci retracement at $11. With Rambus stock running away we’re not concerned with retracement levels, but rather extension levels to recognize areas of potential resistance in the future. The 23.6% extension of the broad move implies a price target of $12.88 in the short term.