In my previous article, "Did Fidelity uncover another Sassy stock?" I told you that we needed to see volume. Yesterday, inContact (SAAS) completed an unannounced secondary offering and we saw 2.8 million shares traded, which was 12 times average volume. Along with massive volume, we saw a strong price surge to $5.82. To me, the secondary has validated my homework and my articles. I believe that we will see a breakout above $6 in the very near future.
inContact completed a secondary offering via a spot deal through Piper Jaffray after what my sources tell me was a one day road show in New York City and/or Boston. The spot deal was for 7 million shares priced at $5 per share. When shares started trading they immediately moved to the upside. Normally, a company that completes a secondary offering sees its shares trade down, or flat at best as brokerage firms place the shares in weak hands. The fact that SAAS initially traded up and then went on to close near the highs of day tells me that investors didn't get their full allocations in the offering. SAAS ended the day trading 2.8 million shares and closing at $5.82 after reaching a high of $5.89. This could be the event that investors were looking for before backing SAAS.
All of my syndicate investors told me that today's action on SAAS was a clear indication that Piper Jaffray did an excellent job placing the shares into strong institutional hands. Yesterday's close above $5.80 on the 3rd highest volume day (2.8 million shares) in the company's trading history and only 19 cents off all time highs, will put SAAS on a lot of radar screens in the days to come. I was also told that many institutional players may have held off buying SAAS over the past 3-4 weeks knowing that this secondary offering was coming. In addition, the company may have been quiet over the past few weeks so as not to run up the shares in face of this offering. Anyhow, it all adds up to a great trading call - the call remains the same.
Next up is the Craig Hallum Conference on September 27. Investors could hear a strong conviction in management's tone as it will be close to quarter's end. I would imagine that if the shares break $6 then it will be standing room only.
Multiple expansion could finally be at SAAS's door as the big institutions enter into the name and demand for the shares seem to outpace supply. I would look to see SAAS command a 9-10 multiple to 2013 estimated software sales of $65 million or $10.50-$12 per share.
We're now 16-20 trading days away from inContact's annual ICUC. I keep saying that this will be the event that unlocks the upside to SAAS's stock price as Siemens (SI) and Verizon (VZ) could show that their sales leverage surpasses even the most bullish forecasts.
After the conference, we could see an upgrade by Roth or initiations of coverage by Piper Jaffray and/or Needham (30-45 trading days).
Looking at the chart we can see that on Tuesday, after selling off the previous two days, SAAS made a low of $4.90 but came back to close at $5.20 right on support of the 200 day moving average. Wednesday, it held that support which set us up for a reversal which we got yesterday with a big move on massive volume back up to previous highs. An indicator which I watch closely, the Balance of Power indicator (which monitors price and volume) finally went strongly positive for SAAS for the first time in 20 trading sessions. This is a very bullish indicator and I would expect to see SAAS challenge and eventually break through $6 in the next one to two weeks.
At the end of day, I put out a trading call a couple of weeks ago to buy SAAS once you see large volume and a close above $6 per share and/or $5.85 per share. I believe that yesterday's action and money raise makes SAAS a more formidable player in the cloud software space. I'm more convinced than ever that SAAS will get the comparable valuations seen by Splunk, Inc. (SPLK), Palo Alto Networks, Inc. (PANW), and Jive Software, Inc. (JIVE) and once that happens, $10-$12 per share will not be far off.
Disclosure: I am long SAAS.