Absolute Software Rally on Earnings Proves Short-Lived

Shares in Absolute Software Inc. (ALSWF.PK) jumped to their highest level this year on Tuesday, adding 12% to C$6.49, after the PC tracking and recovery software company said it swung from a 5¢ loss during last year's fourth quarter to a 36¢ profit this time around.

Unfortunately, the rally on Tuesday's earnings has been shortlived. Through early afternoon trading on Wednesday, the stock had given back all but a few cents of the previous day's gains.

Based on comments from Tom Liston, Versant Partners analyst, investors may have been spooked by Absolute's cautious outlook, which includes a cash flow estimate of C$12-million to C$15-million in 2010, well below the consensus that was forecasting C$20.8-million.

"Absolute’s competitive position is second to none; however, the headwinds in the PC market will continue to weigh on the stock’s near-term performance," Mr. Liston, said in a note to clients.

"We do not believe that a major PC upgrade cycle will be triggered in 2009 or early 2010 as strong PC shipments continue to refresh the installed base. Increased unemployment also weighs against this cycle," he wrote.

He lowered his recommendation from NEUTRAL to SELL, while increasing his price target slightly from C$4.85 to C$5.