inTest Looks Cheap and Ready to Break Out: Wait for Earnings Report Before Buying

Apr.28.11 | About: inTest Corporation (INTT)

I have a stock screener setup that looks for stocks with several fundamental growth characteristics combined with two technical characteristics. Here's how it looks:

  • Company is profitable; ie, PE above zero
  • Quarterly YoY sales growth positive
  • Quarterly YoY earnings per share growth positive
  • Return on Equity over 20%
  • Debt to Equity ratio under 1
  • Stock's performance is 5% above the S&P 500
  • MACD just turned bullish

To this list I added one more criteria: price should be under $5.

Two stocks popped up:

  • Full House Resorts, Inc. (NYSEMKT:FLL) - a company in the Consumer Services-Misc. Amusement & Recreation sector
  • InTest Corp. (NASDAQ:INTT) - a company in the semiconductor automated test equipment sector

Since I tend to be most interested in tech stocks, let me focus on inTest.

inTest specializes in the hardware that interfaces between probes and the chips being tested. It also offers thermal testing equipment including test chambers. At a market cap of $42 million, they fall into the microcap category.

The stock must be quite overlooked as its valuation appears to be quite cheap. The PE is less than 6, Price to Sales is less than 1, Enterprise Value/EBITDA is under 5 and PEG is only 0.34. As mentioned above, the screen requires the stocks to be profitable and inTest certainly is as well as being cash flow positive.

Furthermore, the stock appears to be working on breaking out. Here is the chart (click to enlarge images):

Note the reversal above the blue trend line and the surge above the 50-day moving average in addition to the bullish move in MACD.

Though profitable, the company has been facing some financial headwinds. The following chart shows that year-over-year sales and earnings were good but the last few sequential quarters have shown declining results.

The stock will report earnings next week so we'll see if they can show some better sequential results. In the meantime, however, it is worth noting that there have been a number of acquisitions in the semiconductor test equipment sector. inTest themselves recently bought a German firm. In any case, the sector is ripe for consolidation as many of the companies operating in the sector are small but profitable.

In summary, inTest is a tech stock mired in deep value territory but with its technicals turning positive. Its potential to be a takeover target make it an interesting play but it makes sense to wait a few more days until those earnings are reported.

Disclosure: No positions in any stocks mentioned in this post