eResearch Technology: Turnaround Play Gradually Builds Momentum

eResearch Technology Inc. (ERES) has been a slow and steady mover over the past few weeks. The stock has traded abnormally heavy as of late, tracking solidly above the 50-day moving average and is now real quietly breaking out on moderate volume.

There doesn't seem to be a direct catalyst for this move. The company did have some news as it recently announced that it launched a new line of business focused on electronic patient report outcomes. But management admitted that moving into a new market was not going to impact financial results, at least as far as 2007 goes. And earnings results for the latest quarter that is nearing an end won’t be out for a while.

So it looks like this is simply a case of a turnaround play quietly building some momentum as buyers gradually accumulate shares. We've covered why business is on its way back, thanks to a new management team that is trying to turn the boat around with a consistent stream of contract work and some so called "efficiency improvements" to improve earnings per share estimates.

Take it from RS Investment Management, a fund that has for a while held a large position in eResearch but has been buying on weakness, stockpiling shares in the fourth quarter of last year as well as the latest quarter. They're the second largest institution invested in eResearch with the latest data showing a position of 7.6 million shares. In a report published earlier in the year, the fund cited business that has been delayed but not canceled due to new FDA guidelines; "eResearch's short term performance doesn’t change the long-term investment thesis because eResearch will garner its share of the cardiac testing market."

The fund believes in optimizing portfolio performance by owning low expectation, value-creating companies at attractive prices. eResearch definitely fits that bill.

Comments

[DanielJacome]

nice call! The stock has doubled since you wrote this