Finally, a tech stock that broke out on good fundamental news, instead of on hope that the worst was behind it.
Openwave broke out above 40 resistance yesterday, a day after the company affirmed that its quarter was on track, and the same day that an analyst reported that demand is growing for wireless application protocol (WAP) services.
The stock rose to 40 resistance Monday after CEO Don Listwin, former heir apparent at Cisco Systems , said the company’s quarter is on track. But that was no big deal on a day when the Nasdaq soared almost 5%.
Yesterday OPWV stock jumped another 10% – this time on a flat day for the Nasdaq – and cleared 40 resistance. Thomas Weisel Partners said channel checks indicate that demand is growing for WAP services, with 13 carriers planning on 2.5G launches in the second half of the year. WAP has also begun to find favor with European carriers.
All this is good news for Openwave, which provides open Internet-based communication infrastructure software and applications and is one of the best pure plays on the wireless Internet. The wireless Web is one of the few telecom areas that hasn’t been subject to overbuilding, with the infrastructure for the wireless Internet still in its infancy.
Openwave is not a cheap stock, however, trading at almost 19 times trailing 12-month sales and 170 times June’s estimate of 25 cents a share. However, with earnings expected to grow by 148% over the next year, to 61 cents a share in June 2002, the stock isn’t too terribly overvalued, with a price-to-earnings growth ratio (PEG ratio) of 1.15.
It looks like it could get even more expensive. Yesterday’s breakout came out of a potential inverse head and shoulders bottom (see chart below). The measurement of that pattern – from 13 to 40 – gives the stock long-term upside potential to 67. The 39.50-40 area should now be support.
For a company that stands at the center of the convergence of voice and data networks, investors apparently believe that 170 times earnings is not too much to pay to ride the Openwave.