I've been buying some beaten down tech names ahead of earnings the next few days, specifically RUBI, INFN, and ATEN (purchased yesterday). These companies are generally being rewarded with strong earnings (AKAM today, ATEN today, GIMO last week, SSNI earlier this week). I think RUBI and INFN are strong contenders for strong performance when earnings are released.
I particularly like RUBI. I think they are significantly undervalued in the low $12's. The company will report earnings near the end of the month and I expect them to beat estimates and their own guidance handily. They have a history of under promising and over delivering. EBITDA guidance for the fourth quarter is $20 million, I expect them to come in closer to $25-$26 million of EBITDA, meaning full year EBITDA in the range of $48 - $50 million. Cash should increase to close to $140 - $145 million, meaning at current share prices, the company is valued at 8x trailing EBITDA.
The company has set EBITDA guidance for 2016 at $45 million - $60 million. They initially set 2015 EBITDA guidance at $20 million, and they're coming in at more than double that amount. I would expect the company to raise its 2016 guidance when they release earnings in late February, and then continually throughout the year, similar to 2015. I would estimate 2016 EBITDA of close to $80 million, meaning they are trading closer to 5x 2016 EBITDA! It's difficult to find companies that are growing at 30% - 40% per year trading at 8x trailing EBITDA and 5x forward EBITDA.
I think fair value is above $20. The company traded over $20 per share after last year's earnings release, and performance has more than doubled since that time. I find it puzzling that they are trading at half the price with double the performance. I feel the upside at $12 is 30% - 50%, while the downside is 10%. I have loaded up with shares and options (March 12.5 and 15 calls). Look at CRTO, in the same space, announced earnings today and they are up 20%+. I would expect something similar with RUBI on earnings day.
