Investors looking to find companies with both good underlying business momentum and favorable price action often use a combined technical and fundamental method. One such tactic involves searching for stocks showing good growth traits, sound financial condition, and profitability, while also showing technical breakout patterns. This approach tries to find companies where improving fundamentals might be starting to be seen by the wider market, possibly indicating a new period of price increase. A stock that recently appeared from such a search is EXLSERVICE HOLDINGS INC (NASDAQ:EXLS).
A Good Fundamental Base
The center of this investment tactic starts with finding companies that are not only growing, but doing so from a place of financial soundness. According to the fundamental analysis report for EXL, the company shows an interesting profile on these important measures.
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Excellent Profitability and Condition: EXL receives a top ChartMill Profitability Rating of 9 out of 10 and a Condition Rating of 8 out of 10. This shows very good performance within its IT Services industry group. Important positives include:
- A good Return on Equity of 25.35%, doing better than almost 88% of industry peers.
- Solid and widening margins, with a Profit Margin of 11.91% and an Operating Margin of 15.15%.
- Very good financial stability, shown by a healthy Altman-Z score and a low Debt-to-Free Cash Flow ratio, indicating little bankruptcy risk and a good ability to handle debts.
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Steady and Expected Growth: The company’s Growth Rating of 7 is backed by a history of consistent expansion and positive future outlook.
- Over the last year, Earnings Per Share (EPS) increased by 20.38%, while Revenue rose by 14.43%.
- Looking forward, analysts expect an annual EPS growth rate of 15.66% and Revenue growth of 11.93% in the next years.
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Fair Valuation: With a Valuation Rating of 5, EXL is not priced for ideal conditions. Its Price-to-Earnings ratio of 22.39 is seen as fair compared to both the wider S&P 500 and its own industry. When considering its high growth rate, the stock’s PEG ratio points to a fair valuation, particularly given its excellent profitability.
This fundamental view is important for the tactic because it looks for companies with the engine,strong, profitable growth,and the durability,sound financial condition,to maintain a possible breakout and provide long-term gains.
A Technical Picture Indicating Possible Momentum
While fundamentals give the "why," technical analysis helps spot the "when." The technical analysis report for EXL shows a stock that is stabilizing after a time of lower performance, possibly preparing for its next move.
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Stabilization and Formation: Despite a neutral overall technical trend, the report notes a promising formation with a Setup Rating of 7. The stock has been trading in a set range between about $40.71 and $43.88 over the last month and is now placed in the middle of this range. Such stabilization phases often come before notable directional moves.
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Important Resistance and a Good Signal: A clear resistance area sits just above the present price, between $42.38 and $44.03. A clear move above this area on high volume could indicate the beginning of a new upward trend. Adding to this possibility is the recent note of a "Pocket Pivot" signal, a pattern that shows accumulation (buying) by investors as the price rises on higher-than-normal volume.
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Market Setting: It is important to note that while the S&P 500 trades near highs, EXL has trailed the wider market over the last year. This relative lower performance, paired with its good fundamentals, could mean the stock is not noticed and ready for a period of catching up if the technical breakout happens.
Why This Pairing Is Important
The combination between these reports is what makes EXL a notable candidate for this particular tactic. The fundamental analysis verifies the company is a high-quality, expanding business,the kind of stock that can maintain a major price rise. The technical analysis then spots a specific point where market feeling might be changing to see this value, shown by the stabilization pattern and accumulation signal near an important resistance level. The tactic suggests that when a fundamentally sound stock starts to show technical strength after a time of forming a base, it may present a good risk/reward chance.
For investors wanting to use this method to find other possible chances, the preset "Strong Growth Stock Technical Formations" search is available for more study. You can see the search and its present results here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on data and reports provided by third parties. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
