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Wednesday, August 5, 2009

Stock Chart Pattern - OnMobile Global

Before we take a look at the stock chart pattern of OnMobile Global, here are some fundamental facts:-

Arvind Rao (ex-McKinsey) and Mouli Raman (ex-Infosys) set up the company 7 years back, supported by a private equity fund. They had an IPO in Jan 2008 at a price of Rs 440, and are the leading Indian company in the mobile value-added services space.

Recently, revenue-sharing deals were signed with two large telecom operators - Vodafone, and Telefonica, Spain - that will provide their telecom products access to nearly 35 new global markets.

Top line has grown from Rs 40 Crores to Rs 400 Crores in the last 5 years. By 2012, it is expected to grow to Rs 800 Crores. Profits have kept pace; so have cash flows from operations. Proving that small, fast growing companies can generate positive cash flows if the business model is right and the management is experienced and competent.

Low debt, but no dividend so far. Promoter holding is 57%; FIIs hold another 15%; public holding is less than 12%. No wonder the stock is trading at a P/E of 37. For more details, read this article.

The 2 years bar chart pattern of OnMobile Global seems to be taking a well-deserved rest after a splendid rally:-

OnMobile_Aug0509

The stock saw huge volumes on listing and quickly moved up to 745 in Apr '08 while the Sensex was in the firm grip of bears. It soon succumbed to the bear onslaught and dropped all the way to 200 in Nov '08.

A sideways consolidation concluded with an intra-day low of 185 in Feb 24 '09. A progressive up move with frequent sideways consolidation in a step-like fashion - a sign of a new bull market - took the stock to a high of 682 on July 24 '09.

Here the chart pattern met a resistance zone between 630-690. A small rounding-top bearish formation has brought down the stock to a close of 540 today.

Notice how the stock took support at its 50 day EMA in May '09 and Jul '09? It is likely to find support again at the medium-term moving average. Should it break below it, the 200 day EMA may provide a stronger support.

The current levels of the two moving averages correspond to previous tops made by the stock. Previous tops also tend to act as support levels.

The MACD is still positive, but below its signal line. The technical indicators are saying that the correction may not be over yet.

Volumes have supported the recent up move, though the volume bars are not clearly visible in the chart due to the huge volumes on listing. The RSI, MFI and slow stochastic had all entered overbought zones, and have now dropped down. The slow stochastic is already below the 50% level and the %K line is below the %D line.

The call rates and ARPUs (Average revenue per user) of mobile operators have been going southwards for some time, while the number of users are steadily growing. Mobile value-added services is the next growth area for telecom operators worldwide. OnMobile is perfectly positioned to reap the benefits of this market trend.

Bottomline? The stock of OnMobile Global can be considered for addition in the portfolio of long-term investors. The stock chart pattern shows the zone between 400-500 could provide a better entry point.

6 comments:

The Dark-side Of Life! said...

This is good stuff...but the stock is too expensive for a small retail investor even at 400-500 levels.
Thank you nevertheless!

-Abhishek

Subhankar said...

Thanks, Abhishek.

The good things in life tend to be expensive. We spend so much money on a lunch at the Taj or an evening out at a night club. Spending 2500 on buying 5 shares of OnMobile makes a lot more sense financially, doesn't it?

The Dark-side Of Life! said...

Dear Subhankarji,
I Have been following this stock for the last few months post our conversation on this blog.
Where do you see this stock heading from here on as it has taken a substantial dip?

Thanks
Abhishek

Subhankar said...

I've been tracking it, Abhishek, and it still looks weak technically and expensive valuation-wise. The de-rating of the telecom sector has hurt the stock.

Let it find a bottom first, then one can think of investing. But you can make a token investment now.

scorpio said...

Onmobile close to 400 levels, guess should be a good entry point for this stock?

Subhankar said...

The recent surge on high volumes failed to make a new high. The stock can fall to its previous low of 350.

You can start accumulating on a drop below 400. This is a long term play.