Kenexa Corporation (KNXA): Share price cycles in bullish 'flag'

Posted May 21st 2008 1:02PM by Larry Schutts
Filed under: Earnings Reports, ConAgra Foods (CAG), Wachovia Corp (WB), Technical Analysis, Eaton Corp (ETN), Stocks to Buy

Kenexa Corporation (NASDAQ: KNXA) provides software, services and proprietary content that enable organizations to find and retain employees. The company's web-based applications assist clients in successfully addressing such issues as recruitment, skills testing and tracking of employee development. The firm also conducts clients' recruitment and hiring processes for them. Kenexa sells its software products and services to some 4,000 firms, primarily on a subscription basis. The company client list includes ConAgra Foods (NYSE: CAG), Eaton Corporation (NYSE: ETN) and Wachovia Corporation (NYSE: WB).

Kenexa pleased investors last week, when it reported Q1 EPS of 31 cents and revenues of $48.2 million. Analysts had been looking for 23 cents and $48.8 million. The CEO noted that Q1 saw a record number of new preferred partner customers sign with the firm. Management also guided Q2 EPS to 34-35 cents (34 cent consensus), Q2 revenues to $56-$57 million ($53.73M consensus), FY08 EPS to $1.47-$1.50 ($1.39 consensus) and FY08 revenues to $230-$235 million ($221.45M consensus).

The KNXA share price popped on the news and has since been defining a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with three "strong buys", six "buys", ten "holds" and two "underperforms". Analysts expect a 20% growth rate, through the next year. The KNXA Price to Sales ratio (2.38), Price to Book ratio (1.68), Price to Cash Flow ratio (14.01), Price to Free Cash Flow ratio (22.01), Sales Growth rate (14.22%), EPS Growth rate (63.16%) and Net Profit Margin (12.57%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $16.07 and $42.44. A stop-loss of $16.90 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.

Tags: flag, fundamental analysis, FundamentalAnalysis, Kenexa Corporation, KenexaCorporation, KNXA, momentum, technical analysis, TechnicalAnalysis