In our hunt for attractive value plays, Benchmark Electronics, Inc. (BHE) came across our desk from a recent screen we ran. This company along with its subsidiaries operate internationally in the engineering and technology markets. Currently, the stock trades with an earnings multiple of just under 19 which does not look that attractive compared to Benchmark's average valuation over the past 5 years for example.
What does look attractive however is how cheap the firm's assets and sales are at present. We place the book and sales multiples as the most important valuation metrics when valuing stocks. Earnings for example can be manipulated far more easily on an earnings statement. A firm's assets though and more importantly its sales are what they are.
At present, Benchmark trades with a book multiple of 0.9 and a sales multiple of 0.4. The first number basically means that the stock is currently trading (its market cap) at around 90% of its net worth. The sales multiple means that the present market cap ($960 million) is more or less 40% of what the firm is turning over in top line sales. Any time we have a dividend-paying profitable stock which also is trading under book value, we invariably investigate the company more.
Now, obviously, potential value plays can become cheaper and remain undervalued for a considerable period of time. Being chartists, we believe that any possible fundamental which could affect how the stock trades has already been reflected in Benchmark's share price action. Therefore, let's go to the technical charts to see if it is possible to time a long entry here. Let's start off with the long-term 30-year chart.
Long-term charts obviously give far more information than short-term charts. A case can definitely be made for a long-term triangle or coil on the long-term chart. This coil has been taking place for almost 20 years now. These patterns usually end up as continuation patterns. Therefore, since there was a strong rally in the share price out of the 1990 low which preceded the coil, shares should resume their upward trend once we get a breakout above that upper trend line.
On the weekly chart, we can see that the OBV line (On Balance Volume) has been diverging from price by a significant amount since 2018. Volume trends can be used as an accurate predictive indicator of where price should trend. As we can see from the chart, shares of Benchmark topped out in late 2017 and have been declining ever since. Buying volume though seems to be increasing which is bullish going forward.
The daily chart looks bearish at present owing to the firm's latest Q1 quarterly numbers when $0.33 per share was the number reported and heightened volatility in equity markets. Shares have been in a sustained downtrend since the 24th of last month with a breakaway gap remaining visible on the chart. These gaps usually take place at the beginning of a sustained move so we could still have some significant downside here. The 200-day moving average though has been able to stem the decline for now. It will be interesting to see if this support level holds up.
In fact, the daily chart of Benchmark Electronics ties in well with what is happening in equities in general. Considering the volatility we have had in the S&P recently for example, there is a strong possibility that this index is declining into an intermediate cycle low. Remember, last Monday marked the start of week 19 for the S&P's current intermediate cycle. This means we definitely are in the timing band for an intermediate low over the next month or so.
Therefore, to sum up, Benchmark Electronics looks attractive from a long-term perspective which is being confirmed by its long-term charts. However, over the short term, we may see elevated volatility. We may aim to get long here once we call the bottom.
Elevation Code's blueprint is simple. To relentlessly be on the hunt for attractive setups through value plays, swing plays or volatility plays. Trading a wide range of strategies gives us massive diversification which is key. We started with $100k. The portfolio will not stop until it reaches $1 million.
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.