I have outlined why fundamentals look best at market highs, and worst at market lows. Just like we n...
Thirst for Data Drives This Stock
04/11/2013 10:15 am EST
The rising need for more and faster data processing technology is propelling a potential resurgence in a sought-after company, says Tyler Laundon of Small Cap Investor PRO.
Shares of Datawatch (DWCH) have been bouncing off a long-term support zone.
They’ve had a tough stretch, declining rather steadily since the third quarter of 2012. It was an ugly time—there is no doubt about that—but I don't believe the longer-term investment case for DWCH was evaporating along with the share price.
Put this decline in perspective by viewing the performance of other Big Data companies, and it appears that DWCH's fall from all-time highs wasn't just a one-stock theme. In the past nine months, performance of Qlik (QLIK), Splunk (SPLK), and EMC (EMC) declined as well (though DWCH had much further to fall) after a nice run-up.
Now, they are all back on the move higher, and DWCH appears to be following the trend, albeit as a latecomer.
It's a bit early to call DWCH's rally a robust recovery just yet; it could just be a bounce. But I'd hate to miss a rally—look how well SPLK and QLIK have recovered—and given where shares are today, I believe the risk-reward profile is in favor of buying now instead of waiting longer.
Also, it's not all about the chart. On March 4, DWCH and EMC announced a deal in which BNP Paribas Securities (BNPQY) will use DWCH's software to help BNP get the most out of its existing use of EMC's software. EMC was instrumental in getting the deal done, according to the press release.
This isn't the only validation out there for DWCH's products, but it does reinforce that they are attractive to large corporations; BNP is an $80 billion company. From the press release:
"EMC's evaluation and recommendation of Datawatch RMS was a critical consideration in BNP's selection process. Datawatch and EMC will team together during the implementation of the Datawatch solution at BNP Paribas Securities Services, and are also working on other joint programs for Datawatch RMS and EMC Documentum."
The deal also illustrates how these Big Data software products work together (very few are standalone), and exactly why companies like DWCH (and QLIK and SPLK) are ripe takeover targets. They are perfect "bolt-on" acquisitions for companies interested in assembling end-to-end Big Data solutions—the IBMs (IBM), Oracles (ORCL), and yes, EMCs—and the other mega-tech companies of the world.
There is a chance that's DWCH's jump is a head-fake; there's no way to rule that out. But given that major support around $11 held, and the good news related to the EMC deal—as well as the general uptrend in other Big Data stocks—I’m inclined to believe it's worth wading back into DWCH right here. The upside is 50% to 100% in the next year, possibly more.
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