To start, EMKR had a great earnings call and release on December 8th. Versus the prior quarter; revenue, gross profit and operating income all saw significant increases. Gross Margins continue to improve as EMKR saw a 41.1% margin for the quarter up from 36.3% in the preceding quarter.
Here are the highlights:
- Consolidated revenue was $81.7 million, representing a 47.1% increase from the prior year
- Consolidated gross margin was 35.1%, an improvement from the 21.8% gross margin reported in the prior year
- Non-GAAP income from continuing operations was $4.2 million, an improvement of approximately $18.0 million over the prior year.
- Consolidated net income, including income from discontinued operations of $65.4 million, was $63.1 million, a $58.2 million increase when compared to the prior year
- Consolidated net income per share was $2.10 compared to net income per share of $0.16 reported in the prior year
- Cash and cash equivalents was $111.9 million at the end of the year, an increase of $91.2 million when compared to the prior year
Technically, K Capital has been long since $7.04 and locked in a 14% gain before the earnings call. We sold half our shares at that time and added during the week of December 11th post the earnings release.
The stock has since sold off which in our opinion is driven from insider 10B5-1 plans to sell shares. What traders need to understand is that these plans are drawn up WAY in advance of any earnings release. These insiders were going to sell regardless of the status of the earnings. Legally, there is no other way for an insider to buy or sell a position of a company they work for. In our opinion, the insider selling here is meaningless with the overall fundamentals of the company and is driving the selling pressure this week.
Why?
1) Hedges funds continue to add to EMKR.
As of December 9th, Northern Right Capital Management, L.P. just filed a “Statement of acquisition of beneficial ownership”, which is also known as a 13D. In the filing, it appears as though Northern Right Capital Management, L.P. claims to own 1,235,464 shares. This represents 4.8% of EMCORE Corporation.”
2) Furthermore, the company is evaluating a cash dividend / distribution right now and plans to implement that in the future:
“At this time, the Company expects to approve a cash dividend or distribution to shareholders, with the timing and amount to be determined in a few months following completion of the review.”
3) From a technical analysis standpoint EMKR is trading above the EMA ribbon, with continued bounces off of the 200EMA over the last several quarters. Also, EMKR is seeing continued spikes in volume on large buying candlestick days. An additional indication buying pressure is there.
4) Finally, the general consensus from all sell side banks is a price target of $11 or 50% upside to the current price on December 10th.
(https://www.tipranks.com/analysts/gus-richard)
In our opinion, this latest dip to $7 is a steal to pick up more shares as our initial target is $11 due to the above stated reasons.
DISCLAIMER: We are long EMKR and will not be looking to add to our position within the next 72 hours of this publication.
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