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  • eyesandears51 eyesandears51 Sep 17, 2013 3:10 PM Flag

    SSTK SPO: Med to L/T Prospect Positive, Remainder of Sept. be Cautious

    SSTK certainly has been a momentum stock. Medium to L/T, I like the business model and competitive barriers. The technical’s are beginning to flash caution signals. The fast and slow stochastics are each over 90. A level above 75 suggests an overbought situation. The PEG or ratio of PE to Growth is 3.66, a level of 2.0 is a stock priced for perfection. Any news hinting less than accelerating growth in revenues, or earnings, can cause the stock to correct from 15%-30% in a heartbeat. Please also consider that the prospect of Insight Holdings Group, an early investor with 17.66% of the outstanding shares, selling their position, puts downward pressure on stock appreciation. Additionally, 12.6% Short as a % of Float in SSTK is also a tell. 10% is frequently the threshold for concern.

    SSTK is well above it’s $ 48.05 - $ 48.65 recent support levels. The large 10 % secondary announced yesterday may be difficult for the market to digest, and the stock could be poised for a large correction precipitated by shorts, profit taking, Insight Holdings or other early investor liquidation, or a broader market pullback caused by external events.

    The external environment over the next two weeks is perilous. September 18, the Federal Reserve decides on tapering, next week congress tackles sequester and the extension of US debt limits, and Syria remains a near term wild card.

    In summary while SSTK is trading up today 2.5%, risk adjusted returns favors adding to or acquiring a position closer to the low to mid $ 48’s, a level that is likely to be tested before the end of September.

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    • I also like your thoughtful analysis. However in the near-term, it looks like "sheeple" trumped charts. Unless of course there's some other explanation that I'm not aware of yet.

    • Well articulated analysis. The secondary could be a success until it is completed, followed by a correction in the next two weeks, and smooth sailing in October.

      • 1 Reply to crkenmore
      • SSTK Update..... Stock down 3.41% today vs S$P -.09%.

        Depending on how the market traverses the Federal Reserve " taper " report today, the budget authorization expiring September 30, and the debt extension, all coming to a head this month, the pullback in SSTK may be the beginning of a larger correction. SSTK’s $ 59.30 share price and nearly 3.66 PE/G is richly valued, and can not withstand either disappointing company news, or a broader market correction caused by external events.

        The SPO prospectus outline some of the major company specific challenges......

        “our ability to maintain our competitive position in a highly competitive industry; our ability to protect our intellectual property and protect against infringement claims made by third parties; and our ability to successfully navigate the risks related to our international operations and expansion”

        As previously stated I like the companies Medium to Long Term prospects but believe that a combination of a very high valuation, company challenges to overcome, and external factors that may result in a September market correction, the risk/reward at $ 59 plus is not compelling. The recent stock support base of $ 48- $ 48.50 provides a much better balance between risk and potential share price appreciation.

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