MagicJack (CALL)
Almost a month to date, on January 10th I wrote about Magic Jack (CALL) first here as a Momentum Rank Buy. On that date, the stock was trading at roughly $13.50. Since then shares of the Magic Jack maker leapt 48% to a high of almost $20. I thought it would be a good time to revisit Magic Jack and explore where I see the stock headed now as it has settled down to the $17 level.
Obviously performance like this must be backed by fundamental data, which we are seeing. On January 19th the company announced they sold over eight million MagicJacks and the Board has increased the company’s share repurchase program up to $55 Million in common stock.
They went on to say that the amount of options outstanding has decreased to less than 1% of shares outstanding and the company has successfully extinguished all of the preferred like equity on its balance sheet as of yearend 2011. They noted that the balance sheet will be more transparent in the 2012 and we expect relatively few options outstanding by the end of year. CALL does not currently have any secured debt on its books.
What we do have is Oppenheimer Securities not only initiated coverage on this small cap, but started it with an outperform rating, which is a big positive and can be viewed as bullish going into an earnings report even after a big run. On top of that, Zacks Investment Research published a research report on February 1st, initiating the stock with an outperform recommendation and set a target of $20.30.
We do know that Magic Jack sold over 365,000 of its new MagicJack Plus devices between November 20th and December 20th. They are estimating 4q sales to come in around 55-60 million units, which would make for a very strong quarter. They also recently cancelled a secondary stock issue, which tends to be bullish as offerings dilute the existing shares. In addition, MagicJack also recently announced a share buy-back program.
Volume remains on the low side, which creates added risk and liquidity issues. Generally it’s a smart idea to scale back investments in any stock that trades volume below 500,000 shares per day on average. This stock certainly fits that description.
Company Description
MagicJack VocalTec Ltd. is a provider of carrier-class voice over Internet protocol (VoIP) and convergence solutions for fixed and wireless communication service providers. They are the makers of MagicJack and MagicJack Plus, which you may have seen advertised on TV.
Their latest product is a hit with both consumers and with investors in the stock. Shares have been trending higher for the past five months after consolidating around the $9.50-$10.00 level in late July, early August 2011.
Financial Profile & Earnings
MagicJack is trading at about 17 times forward earnings. Last quarter, they generated 3.91 million in income and earned .17 per share. Last quarter’s earnings surprised estimates by 13.33%. They are expected to lose 11 cents this quarter, but swing back to strong earnings per share growth over the next year.
MagicJack ended the quarter with assets of $114 million against total liabilities of $106 million.
The financials are certainly not perfect, but with strong sales, supportive news and updates as well as a strong technical channel, CALL qualifies as a momentum stock and could see further upside.
Overbought at the Moment
A 48% leap in a month’s time is certain reason to exercise caution and the stock is no doubt volatile. But for those with an appetite for a little more risk this may be a stock you can buy on the pullback down at the $15.00 level.
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Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
