Today’s recommendation is a stock that jumped 12% in one day on Friday, in response to its earnings report. The stock was already on the Digest radar screen, thanks to Investors Intelligence’s recommendation the day before the earnings report. Then today, the stock got a second endorsement from Cabot Top Ten Trader Editor Michael Cintolo, who thinks it’s still buyable at its new highs. Both recommendations are below.
“Even in today’s world of smart phones, tablets and high-speed networks, most business commerce is still conducted manually and with paper invoices and payments. Ariba, Inc. (ARBA) is changing all that, aiming to be something of a business-to-business eBay or Amazon; the company bills itself as the world’s leading business commerce network where firms of all sizes can connect to their suppliers online. It’s a win-win for everyone involved — purchasers save money and gain visibility, suppliers benefit from a huge and expanding base of buyers, and Ariba makes money from all of them through subscriber fees and per-transaction earnings.
“The potential going forward is truly enormous; Ariba’s network handles $300 billion of transactions every year, but that’s just 10% of what its current customers spend in B-to-B transactions, so even if no new customers are inked there’s still plenty of upside. (The goal is to get to $1 trillion in the next five to six years.) We see no reason why it can’t get there, as the company is the leader in just about every B-to-B segment (sourcing, procurement, invoice management, working capital management, etc.), and it’s already a global player, with about 40% of revenues coming from outside North America. Of course, there’s always a fear that if the global economy sputters, so will business spending, but last week’s quarterly report showed that, if anything, Ariba’s business is accelerating as subscribers and network activity pick up. We like it.
Technical Analysis
“ARBA had a fairly persistent advance from late 2008 (at 6) through July of last year (to 37), but it was hit hard by the market’s mini-crash and has been base-building ever since — at least it was until last week, when the company’s stellar earnings report caused shares to erupt to new highs on more than five-times average volume. To be fair, ARBA has never been an institutional darling, but it’s possible the stock is beginning to ‘grow up’ and we like the look of last week’s breakout. You can buy some here, and we suggest a loose stop around 34.
“Suggested Buy Range: 37-39.5"
- Michael Cintolo, Cabot Top Ten Trader, April 30, 2012
Second Opinion: Ariba, Inc. (ARBA)
This recommendation from Investors Intelligence was published April 26, before ARBA’s breakout Friday. But I think the second opinion is still valuable.
“Ariba (ARBA), an e-commerce software and service provider, shows strong price and relative uptrends. The price chart this month printed a triple top breakout and now looks set to retest the high from 2011 of $37.14. ... The P&F relative chart is also close to long-term highs, indicative of outperformance.
“We shall buy ARBA for the Trading Portfolio. The long would be exited following three consecutive end-of-day closes beneath $32. Initial target is to $40.”
- John Gray, Investor’s Intelligence, April 25, 2012