The company
Liquidity Services Inc. provides property Internet auction access services. The company's business is focused on selling services to companies involved in the production and sale of devices and equipment intended for corporate buyers, public and municipal entities rather than the end user. Liquidity Services Inc. also offers its web platforms for sale of property by public and municipal entities. In addition, the company owns one of the leading international Internet markets for sale of energy and energy system components and one of the leading platforms for sale of services in freight transportation.
Investment idea
The company has strong fundamentals and maintains a steady position in the market. Its revenues significantly grew in the previous financial year. In the context of the falling sector and all markets in general, the company showed practically no decline and, as such, claimed its position was better than the market. In our opinion, investors systematically underestimate the company given reported figures above expectations. The company’s corporate (non-systemic) risks are at a minimum due to strong fundamentals. Major risks remain systemic in nature – deterioration of the economic situation in the U.S.
Potential trading plan
For an aggressive entry, we recommend waiting for signs of renewal of an uptrend based on the stock market indicators following a correction of stock indexes.
Now we suggest building a position around $30-$32. We believe that the price is very unlikely to go below this range as stocks find a serious support on this level. The growth potential is targeted at $42.
The risk scenario involves either systemic downturn or sudden deterioration of the company’s fundamentals. The analytical stop loss should be put below $29 after the stock gets stabilized.
The mathematical expectation of the trade is positive: about 30% of potential to the target, the stop loss risk is 10%. Risk to reward ratio is 1 to 3.
Fixing is recommended at $39-$40 to increase trading turnover.
Recommended trading plan
Entry $30 - $32; Target $41.8; Stop under $29 upon stabilization.
Short-term fundamental analysis
The company's earnings have demonstrated confident growth since late 2010. As forecasts suggest, it will maintain high earnings levels, above Q3 2011 figures, in the 4 quarters to come.
Earnings growth is also supported by record sales. We expect that the company's earnings and sales will keep their positive dynamics in the next 12 months.
Long-term fundamental analysis
Starting in 2010, the company has demonstrated annual growth in revenues. As a result, we expect the company to significantly exceed earnings figures in 2012-2013 over previous years and show record EPS.
Revenue growth is in the context of a similar record increase on the company's sales in 2011. We also expect sales to grow by end of 2012-2013.
Analysis of short-term expectations
EPS outlook trend
Recently the company's earnings outlook has been raised. We believe these changes will contribute to further growth of the price.
Estimated and actual reported figures of the company
Figures for the last four quarters were reported above expectations. Its shares are regularly undervalued because fundamentally the company is stronger that analysts' (investors') expectations. We believe the company to be underappreciated now as well.
Number of EPS revisions
There were no revisions over the past month, the overall estimate for the current and next years remains invariably high.
EPS revision potential
There is some potential for improved EPS expectations.
Analysis of long-term expectations
The current target value that investors are focused on is $41.8. In recent two months, the target was upgraded due to strong fundamentals. There will be an opportunity for a more beneficial entry of the position after a market correction. As a result, the upside will improve.
Long-term expectations
Target price
Our target price by end of 2012 is within $41.5-$42 (about a 30% growth potential). The average estimated target is $41.8. We believe this is the range that most investors are targeting.
Financial figures
