Kenexa Corp.: Small But Growing

Kenexa Corp. (KNXA) broke out of a long one year base ahead of its earnings report after the bell today (it's down nearly 5% after hours, which may offer a better entry point).

About:

From Google Finannce:

Kenexa Corporation provides software, services and content that enable organizations to recruit and retain employees. The Company's solutions are built around a suite of configurable software applications that automate talent acquisition and employee performance management best practices. It offers the software applications that form the core of its solutions on an on-demand basis. The Company complements its software applications with tailored combinations of outsourcing services, consulting services and content. Kenexa sells its solutions to large and medium-sized organizations through its direct sales force.

Fundamentals: KNXA is a very small company (just over 100 million in sales last year) but one that is experiencing a big growth spurt since first becoming profitable in 2005 when the company posted earnings of .40/share (compared to a loss of .22/share a year earlier). The company continued the earnings momentum last year by posting earning growth of 140%. This kind of growth isn't expected to continue, but estimates do call for growth of around 30% over the next couple years. Net margins are solid at around 13%, but ROE isn't impressive at 8% and has been declining in the past couple years. All in all, this is a very good company, but not what I would consider elite.

Technical: Today, the stock broke out from a long one year base with big volume to new all time highs, BUT the company did report after the bell and guided next quarter in line to lower, which took the stock down nearly 5% in after hours. This may present a better entry or could derail the stock entirely. If the stock can find support at the point of breakout around 39, I'd be willing to initiate a small position. While the base is a bit on the sloppy side, you can't argue with the bullishness of a stock breaking out of a long base to new all time highs.

Full Disclosure: I currently DO NOT own a position in KNXA.