Software firm SS&C Technologies (SSNC) is set to release earnings results after the closing bell on Thursday. If you aren't familiar with the company, the company provides software products and software-enabled services to the investment industry. These products help firms manage various aspects of their business including front- and back-office functions, trading and modeling, and portfolio management.
Analysts expect the company to earn $0.85 per share on revenue of $1.11 billion. The company earned $0.54 in the fourth quarter of 2017, so analysts are looking for a year over year increase of 57%.
Over the last three years, SS&C has averaged annual earnings growth of 23% and earnings grew by 58% in the third quarter of 2018. Sales have grown at an annual rate of 34% over the last three years and were up 137% in the third quarter.
The company has beaten earnings estimates in three of the last four quarters.
SS&C has strong management efficiency and profitability measurements. The return on equity sits at 16.6%, the profit margin is at 33.9%, and the operating margin is at 17.65%.
The Stock Doubled in Just Over 18 Months
SS&C rallied sharply from the beginning of 2017 through mid-2018. The stock price moved from below $30 a share to over $60 a share this past July. The stock did slip in the fourth quarter, but there were very few stocks that didn't fall in the fourth quarter.
You can see on the chart how the stock fell below its 52-week moving average in October and continued lower and closed below its 104-week moving average in December. The stock has since bounced back above both of those moving averages.
We see that the 10-week RSI was right at the 30-level in December and the weekly stochastic readings were hovering near or in oversold territory from October through late December. The rally over the last eight weeks has caused the stochastic readings to move into overbought territory and the RSI is close as well. The stock has gone up for eight straight weeks at this point.
The Sentiment Picture is Mixed
Turning our attention to the sentiment toward SS&C, we see that the indicators are mixed. There are 12 analysts following the stock and 11 have the stock rated as a "buy" while one has it rated as a "hold". This tells us that the analysts are pretty bullish toward the stock, but I am a little surprised there aren't more analysts following the stock.
While analysts may be extremely bullish on the stock, short sellers certainly aren't. The current short interest ratio stands at 5.51 and that is the highest reading over the past year. When the company issued earnings at the end of October, the short interest ratio was only 2.85. The number of shares sold short jumped to 7.94 million at the end of January.
SS&C doesn't see a great deal of options activity, but the current put/call ratio is at an incredibly low 0.40. While that low of a ratio is indicative of extreme optimism, I take it with a grain of salt because there are only 2,132 puts open and 5,351 calls open. That represents 748,300 shares of the stock and the average daily trading volume is 1.44 million shares.
My Overall Take on SS&C Technologies
For the long term, I am bullish on SS&C Technologies, but there are a few things that concern me heading into the earnings report. I am a little concerned about the overall analysts' ratings being so bullish, but because there are only 12 analysts following the stock, it isn't a major concern.
The second concern is the steep rally the stock has experienced in the last eight weeks. It is the epitome of a v-bottom chart and the fact that the oscillators have moved back up so much, that worries me a little.
Honestly, I would love to see SS&C dip a little after its earnings report because I would love to add it to the Hedged Alpha Strategy portfolio, but I would have a hard time adding it right now based on the overbought/oversold indicators.
The fundamentals are strong and there is some pessimism from the short sellers. The chart looks good in that it is in a long-term upward trend - if anything, it looks good because of the rally over the last eight weeks.
I look for SS&C to continue moving higher over the next few quarters, but I would like to see a slight pullback for my own selfish reasons.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.