NVE Corp.: The Good Times Are Back

| About: NVE Corporation (NVEC)

NVE Corp. (NASDAQ:NVEC) followed through from Friday's move and soared above the high of the handle formation of a large cup base.

From Google Finance:

NVE Corporation develops and sells devices using spintronics, a nanotechnology it helped pioneer, which utilizes electron spin rather than electron charge to acquire, store and transmit information. The Company is a licensor of spintronic magnetoresistive random access memory technology [MRA]), which has the potential to revolutionize electronic memory. NVE also manufactures spintronic products, including sensors and couplers that are used to acquire and transmit data. The Company's designs use one of two nano-scale spintronic structures: giant magnetoresistors or spin-dependent tunnel junctions. Both structures produce a large change in electrical resistance depending on the electron spin orientation in a free layer. In giant magnetoresistance [GMR] devices, resistance changes due to conduction electrons scattering at interfaces within the devices. NVE operates through a single segment and has three product lines to offer: sensor products, coupler products and MRAM products.

The company provides its technology to Starkey Laboratories, which improve the user experience with its hearing aids, allowing for the automatic adjustment during a cell phone call as well as smaller hearing aid devices. Another major customer is St. Jude Medical, which uses NVEC technology in its pacemakers and implantable cardioverter defibrillators.

FUNDAMENTALS: NVEC is a very small company (15.4 million in sales in '06) that experienced tremendous growth in 2003 when it posted its first profitable year and then again in 2004 when earnings more than doubled over '03. Then the company hit a bit of a snag and posted poor results over the next two years. However, the good times are here again for NVEC. Over the past year, the company has posted quarter over quarter earnings growth of 111%, 238%, 144% and 154% and sales growth has accelerated nearly every quarter over the past year. 2008 estimates call for a 30% increase in earnings over 2007, so it's clear the company is finding additional customers and larger contracts for its technologies . . . and those companies are willing to pay a premium with pre tax margins of 44%. Return on equity is equally impressive at around 25%.

TECHNICAL: On Friday, NVEC provided the first buy opportunity when it broke through the downward trend (by drawing a line across the highs) of the handle. Today, it confirmed that move and provided a second buy opportunity when it cleared the high of the handle formation above 37.67. Over the past two days, the stock has vaulted nearly 20%, but the volume behind the move is a bit of a concern. Trading volume today was less than the volume during the move in early May as well as the move on February 26th. That being said, I believe the stock has enough momentum to hit resistance around the November '06 highs, but should not be chased at these levels. If you missed the two buy opportunities wait for some kind of pull back to at least 37.67 and preferably to the area around 35. I'm looking to take profits around the November highs due to the severity of this base which is too deep with sell volume too intense in the left side. I believe the base is prone to failure after it hits 45, but would reconsider another position if it can surge above that level and hold for a few weeks.

Disclosure: Author currently owns a position in NVEC.