My latest purchase was microcap stock GlobalScape (GSB), a file transfer software and managed services company. Computer users know it best for its low end FTP products, CuteFTP and CuteFTP Pro. But that’s just a small fraction of its business. The revenues are mostly from the more advanced, server-based file transfer programs like EFT Server and EFT Server Enterprise. Managed file transfer services are also growing.
OK, so the business is pretty boring. For a tech company it's difficult to find something more mundane than file transfers. As a stock, however, GlobalScape has a lot to offer. I bought GSB over the last several days at $1.46 to $1.49. Here are three reasons why:
1. Fundamental turnaround. After several periods of growth, GlobalScape posted both a sharp decrease in revenues and a GAAP loss in 2008. The poor results hit shares hard, sending them down below $.60. While the full year 2009 results are not out – and won’t be until the end of March – it looks like GlobalScape has returned to both profitability and revenue growth. For the first third quarter of 2009, GlobalScape posted revenues of $4.296 million, or 14.83% more than last year, and earned over $575k. There is always event risk going into an annual report, but GlobalScape faces easy comps.
2. Positive newsflow. A series of positive press releases in the beginning of March, especially this one regarding new deployment of the high end EFT Server products at AMD (AMD), helped spike the stock intraday to $1.75. Though it quickly retreated, I like to see the stock influenced positively by the newsflow.
3. Technical setup. See that 15% jump, now fully retraced, in early March? That spike and retreat formation has always served me well in microcaps. It defines the risk — 10% down from here, and the pattern has failed. But if it holds, it's usually just a matter of time before the spike high is taken out and 52-week highs get challenged. The longer-term picture is also bright. After gaining over 300% in just 5 months, shares have had a healthy pullback and consolidation. Anything can happen here but the path of least resistance appears to be facing north.
DISCLOSURE: Long GSB.