Thursday, January 7, 2010

Reuters: DragonWave (DRWI) Rally May Hold on Another Upbeat Quarter

I was excited to see a story by a news agency on little known DragonWave (DRWI) - our smallest company by market capitalization, so I thought it worthy to bring over.  This is yet another name we recently purchased a started position in, HOPING for the stock to FALL so we could buy more - but at least wanted some skin in the game.  Since very few stocks are allowed to fall anymore we are only left with our 1%ish exposure. 

Looking at the chart - like almost everything we hold which has run up... it is very extended (look at how far away from the 50 day moving average it is) but the chart is in great shape.  When these stocks are so strong I like to put on the 10 day moving average on the chart, and you can see DragonWave is hopping and skipping along for 4 weeks mostly not even coming all the way back to this green line.  It creates a conundrum because I see so many stocks in the same position - breaking out, but well overdue to pullback.  I've cut some of our names in this position to lock in profits, but am letting others ride.

Specific to DRWI if the move continues until earnings, we'll do our normal protective stance and cut back right before the release - of course missing out on any "better than expected" post rally move, but also protecting ourselves from the potential 20-30% haircut that can come when overextended stocks meet disappointing news.

Via Reuters:
  • DragonWave Inc, a Canadian radio transmitter maker, is expected to give an upbeat outlook topping analysts' expectations, led by higher revenue from its key customer Clearwire Corp (CLWR), raising hopes that the stock may rally further.  DragonWave's shares have surged almost 11 fold in the last one year as wireless service providers have scampered to roll out and improve their mobile broadband networks.
  • The Ottawa-based company designs and manufactures microwave equipment for broadband wireless systems for network operators and service providers worldwide.  Wireless service provider Clearwire, which is building a WiMax-based nationwide network in the United States, accounts for more than 70 percent of DragonWave's revenue. (which is the risk we outlined in our December pieceAnalysts say DragonWave, which is highly dependent on the growth of WiMAX networks, needs to enhance its customer base of large service providers to get rid of the often unpredictable order patterns. (amen)
  • Though revenue dependency on a single customer is a concern, DragonWave could witness more growth as bigger players such as Verizon Wireless and AT&T (T) play catch-up in deploying their next-generation networks.  Verizon Wireless, which is testing 4G service, plans to deploy it in 25 to 30 markets by the end of 2010, while AT&T plans to start the service in 2011.
  • "I am expecting a strong quarter with very good sequential growth, primarily driven by accelerated deployments at their largest customer Clearwire," analyst Michael Walkley of Piper Jaffray said, adding that Clearwire could represent a greater percent of revenue this quarter.  The company, which currently expects its revenue in fiscal 2010 to exceed C$150 million, may further raise the outlook, Walkley said.
  • "While we expect that third-quarter results will be dominated by Clearwire-related revenue, we believe that non-Clearwire revenue will be driven to a new record by orders from Globalive and Yota during the quarter," Canaccord Adams analyst Peter Misek said in a note dated Jan. 4.
  • Misek, who has a "buy" rating on DragonWave stock, expects large wins from North American carriers will provide the company with a strong footing entering calendar year 2010.  "They (DragonWave) have been accelerating their deliveries to Clearwire. This should be a strong quarter for them and probably should be strongest for the year," analyst Todd Coupland of CIBC World Markets said.
[Dec 22, 2009: Starting Stake in DragonWave]

Long DragonWave in fund; no personal position

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