Identifying promising growth stocks often involves a dual-lens approach, combining the forward-looking perspective of fundamental analysis with the timing insights of technical analysis. One method is to screen for companies demonstrating strong underlying business growth, evidenced by solid sales and earnings expansion, while also exhibiting healthy financials and profitability. Layering on a technical analysis filter for breakout patterns can help pinpoint moments when market sentiment is aligning with these fundamental strengths, potentially signaling an opportune entry point. This strategy seeks to capture stocks that are not only growing but are also on the cusp of a significant price move.
INNODATA INC (NASDAQ:INOD) recently surfaced from such a screening process, designed to find strong growth stocks with favorable technical setups. The company, a data engineering firm focused on artificial intelligence software and services, appears to align with several key criteria that make it a candidate for this investment style.
Fundamental Growth Assessment
The core of a growth investing strategy is identifying companies with accelerating or sustained expansion in their business metrics. Innodata’s fundamental profile, as detailed in its fundamental analysis report, shows clear evidence of this.
- Strong Recent Growth: The company has posted notable year-over-year increases, with Revenue growing 73.57% and Earnings Per Share rising 64.41%. This kind of momentum is a primary target for growth investors.
- Solid Forward Outlook: Growth is not just a past phenomenon. Analysts expect this path to continue, with projected annual Revenue growth of nearly 24% and EPS growth of about 16% in the coming years.
- Firm Financial Foundation: For growth to be sustainable, a company must be financially healthy. Innodata performs well here, earning a top-tier ChartMill Financial Health Rating of 9 out of 10. Key strengths include:
- A very strong balance sheet with minimal debt (Debt/Equity of 0.08).
- Good liquidity, with Current and Quick Ratios of 2.69, indicating ample ability to meet short-term obligations.
- A high Altman-Z score, suggesting very low bankruptcy risk.
While its Valuation rating is low due to a high P/E ratio, a common characteristic of high-growth stocks, its superior Growth (rating of 8) and Health ratings form a foundation that growth investors often prioritize over current valuation multiples.
Technical Setup for a Potential Breakout
A strong fundamental story is most potent when it coincides with a positive shift in market price action. Innodata’s technical analysis report indicates it may be setting up for such a move, earning a Setup Rating of 7 out of 10.
- Consolidation Near Resistance: After a strong rally over the past year, the stock has been consolidating its gains. It is currently trading near a defined resistance zone between $64.97 and $65.01. A decisive break above this level could signal the resumption of the prior uptrend.
- Building Support: The stock has established multiple support levels below the current price, notably near the $60 area where several moving averages converge. This provides a clearer framework for managing risk.
- Positive Momentum Signs: The short- and medium-term moving averages (20-day and 50-day SMAs) are rising, and the report notes a recent "Pocket Pivot" signal. This pattern, marked by an up move on higher volume, can indicate accumulation by institutional investors.
This technical picture suggests the stock is pausing after a strong run and may be preparing for its next directional move. For a growth investor, a breakout above the noted resistance could be interpreted as the market confirming the fundamental growth story.
Alignment with Growth Investing Principles
Innodata’s profile touches on several qualitative factors important for long-term growth success, as outlined in growth investing methodologies. The company operates in the large and high-growth field of AI data engineering, a market with significant secular tailwinds. Its services, ranging from AI data preparation to medical record digitization, target large and growing addressable markets. Furthermore, its transition towards an AI-focused platform business model suggests management is shifting to capitalize on these trends, a key consideration for assessing a company's future potential beyond just its historical numbers.
The combination of strong fundamental growth, a very solid financial position, and a technical chart suggesting a potential breakout makes INNODATA INC an illustrative example of a stock that fits a "growth with timing" screening strategy. Investors utilizing this approach seek to find companies where business momentum and market momentum may be converging.
You can explore other stocks that match this "Strong Growth Stocks with good Technical Setup Ratings" criteria by using the pre-configured screen on ChartMill.
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 presented is based on data and reports available at the time of writing. 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.
