Interclick: The Art of Buying High to Sell Higher

| About: Altaba, Inc. (AABA)
This article is now exclusive for PRO subscribers.

I have a good friend who’s a very successful officer in one of the world’s largest executive placement firms. Frankly, he has no interest in, or taste for trading stocks. He’s content with growing his money through traditional investment vehicles, and feathering his retirement nest with stock options. Whenever my phone rings and I see his phone number pop up, I always answer and intone in a nasal secretarial voice, “Good afternoon, Slotnick Securities, Buy High Sell Higher.”

No doubt, as a trader, one of the hardest things to learn is when to buy high to sell higher. If you’ve been trading for any length of time, I bet you’ve watched the price of a stock you like make a quick move up. Being savvy at the game, conventional wisdom tells you to be patient and wait for it to retrace its gains, and consolidate a bit at a price level more to your liking. Sometimes that happens, and sometimes a stock just keeps breaking out, knocking down 52-week-high after 52-week-high.

Right now, the shares of interclick (NASDAQ:ICLK) are in the process of establishing, knocking down and rolling up new 52-week-highs. My guess is, at least in the short-term, ICLK shares will continue their steady price ascent, as long as favorable overall market conditions prevail, and the company’s earnings remain robust.

First, a little about the company. Based in New York and founded in 2002, ICLK provides data-driven digital advertising solutions, including online display, video and other media formats. The company’s Open Segment Manager platform organizes and valuates various data points to construct responsive digital audiences for digital marketers. So what does that mean in plain English? It means that the company has developed and marketed proprietary technology to target the online audiences that businesses and marketers want to reach. Kind of like the “Mad Men” of the digital age. And judging from their recent earnings statements, it looks like customers are snapping up interclick’s solutions with fervor. You can click here to take a look at their products.

Now for me, when it comes to trading stocks, I won’t often hone in on a company’s earnings. Volume surges, price trends and a good story are more than enough to move the price of a stock higher. In ICLK’s case however, I couldn’t help but notice the company’s recent financials. For the first quarter of 2010, ICLK reported a $344,000 loss in operating income. Since then, in subsequent quarters, ICLK has recorded operating income of $1.2 million, $2.8 million and $4.6 million, respectively. During the second half of 2010, ICLK generated net income of almost $4 million.

Those are nice numbers by any measure, and it appears that the company is gaining traction, growing earnings every quarter over the past year. That doesn’t mean that the stock price necessarily will go up; it just means that there’s some real ballast to the company that should act as support if you choose to buy and hold ICLK’s shares.

As the chart shows, however, ICLK’s stock has responded to the company’s performance by moving up in virtual lockstep with income and earnings growth. About two weeks ago, ICLK’s shares broke through thorny resistance at around $6.50 per share. That's near the stock’s previous 52-week-high established last fall and a level briefly touched a few times before it broke and held. Looking back three years, you can see the $6.00 - $6.50 level is actually historical resistance for ICLK stock—with the breach and hold of that price about as bullish as a technical indicator can be.

At Friday’s close, shares of ICLK sat at around the $7.25 mark, after establishing a new 52-week-high of $7.30 on average trading volume. The preceding Monday, ICLK’s shares cracked $7 before consolidating a bit in the $6.70 - $7 range. Here’s the million dollar question: Will ICLK’s shares continue to breakout and tack on additional “blue sky” gains, or will they pull back to consolidate at lower levels before resuming their ascent? My educated guess is that as long as overall market conditions remain bullish, and the company logs one more quarter of significant revenue growth, new 52s will follow.

Keep in mind that if chasing a secondary breakout is how you like to roll, watch for price acceleration on strong volume. Breakouts rarely hold without it. Of course, you may want to be patient, waiting for shares to pull back to a price point you feel is a good entry for a longer term hold. Either way, no matter which immediate direction ICLK’s share price heads, the stock is worthy of watching in the days and weeks to come—as both a breakout candidate and legitimate growth story.

Perhaps most importantly, remember that some of the best trading opportunities arise when you’re willing to buy high with the goal of selling higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.