Will Smith Micro Double Again In January?

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 |  About: Smith Micro Software, Inc. (SMSI)
by: BuySellShort

A year ago Smith Micro Software (NASDAQ:SMSI) had a tremendous run from $1.08 on December 15, 2011 to $2.87 on February 8, 2012, a return of 165%. There was no meaningful news to account for that run, although, in early January after the stock was up 50%, it announced news with Sprint (NYSE:S) at the Consumer Electronics Show (CES). What is the more likely explanation for the run is a phenomenon we call the "January Popper Effect" wherein beaten down stocks from the prior year experience a large bounce in price into the early part of the next year. This move tends to happen more so in companies that are at CES in Las Vegas. Smith Micro appears to be setting up for a similar run this year and is again at CES.

Smith Micro provides software and services that simplify, secure, and enhance the mobile experience. A quick perusal of the company's website gives some nice insight into the hot sectors they are in, and the potential, especially at this price level, for gains in the coming year. The big play on Smith Micro is their Windows 8 mobile software. Although Windows 8 is rolling out slower than expected, its adoption will inevitable pick up in 2013, and that in turn will power sales at Smith Micro. The stock was able to put in a bottom back in November when they announced that Sprint has selected the QuickLink® MiTile™ solution to manage its broadband functionality on Windows 8 devices.

Over the last year, Smith Micro has been undergoing a restructuring to better modify their cost structure for their business. Those moves are starting to pay off. Per the recent earnings report, "Revenues for the third quarter of 2012 were 8.3% higher than the second quarter primarily due to the continued roll-out of NetWise Director™, our data offload solution, as well as market expansion of our Visual Voicemail and Voicemail-to-Text products," said William W. Smith Jr., President and CEO of Smith Micro Software. "Our operating expenses for this quarter were down slightly versus the second quarter, and were down 35% this year versus the same quarter last year excluding restructuring and impairment charges." Sales are up and costs are down are exactly what an investor wants to see in a company. With the turnaround underway the coming year should see a return of Smith Micro to a higher valuation.

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As you can see from the Smith Micro chart, the stock has been in a solid downtrend over the last three months, falling from a price of $1.71 to the recent lows of $1.10. Over the last month the stock has built a nice consolidation band in the $1.20's and looks poised to finally break out above resistance at its 50-day moving average, currently at $1.27. A break of this level should clear the way for a move back to the 200-day moving average, currently at $1.70 in the near term.

Smith Micro is a turnaround story for 2013 that has a nice chart set up and compelling financials for investors looking for very good risk/reward in this market. As stated earlier, Smith Micro is again at CES in January, which is also the last time Microsoft (NASDAQ:MSFT) will be in attendance. Mobile is very likely to be an emphasis for Microsoft and that should in turn help Smith Micro. The stock doubled into CES last year and a similar performance could be seen this time around, especially if they announce more deals at the show. We have only gone over one small sliver of Smith Micro's business, and emphasized Microsoft, but a quick look at their website will show the many areas, and companies, they are involved with. It is definitely worth the time of potential investors to dig even deeper into the company. The current pricing of Smith Micro, the CES angle, and the large run it had into last January, make the stock a very attractive pick-up for investors right now.

Disclosure: I am long SMSI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.