Sometimes, I get pulled into a stock trade simply from the chart pattern. The underlying long-term business future is not entirely important. I am searching for a quick gainer. Then, after a few weeks to a month, I’m out of the position. The equity I have been watching for months in this regard is Matrix Service Company (MTRX).
Matrix is an infrastructure builder. It provides engineering, fabrication, construction, and maintenance services primarily to the oil, gas, power, petrochemical, industrial, agricultural, mining, and minerals markets in the United States and Canada.
Image Source: Company Website
From a fundamental standpoint, the current $9 stock price represents an equity capitalization of $250 million vs. $320 million in accounting book value at the end of 2019. Matrix’s balance sheet is stronger than U.S. averages, especially compared to other smaller-cap enterprises, with $380 million in current assets like cash and receivables against $270 million in total liabilities. Over the past 12 months, Matrix generated $1.4 billion in sales, flat earnings, $66 million in cash flow and $38 million in free cash flow. The stock is cheap because a big part of its business – about 50% of sales – involves servicing and building tanks and lines for oil & gas companies, heavily hit by the collapse in petroleum prices during early 2020.
I have been waiting for a turn higher in the stock to buy a position, and that remains my battle plan. When trying to catch a falling knife in the small-cap arena, you need to wait for other investors to put up their capital and create a bottom first. Sometimes, short-sellers may start to cover and put a bottom in place. So far, as you can see on the chart below, the stock has not been able to get above its 14-day moving average, the green line, for many months running.
Nevertheless, the April bounce higher with the stock market generally may produce a tradable bounce in Matrix any day now. The daily On Balance Volume (OBV) line, circled in green, has been performing much better since early March. It appears some buying interest, different than months previous, is accumulating shares in the $7-8 range. The intermediate-term oversold Average Directional Index (ADX) close to 50 screams a reversal is becoming overdue, circled in blue. Plus, the Negative Volume Index (NVI) has been trending higher since mid-March for the first time the last 12 months. Basically, buying is evident of late, on both low- and high-volume days.
Will it continue? Will new money show up to push the price even higher? As always, it’s difficult to predict. For sure, the current volatile economic and trading environment is harder than usual to find trends that will sustain themselves for a while.
Getting above the 14-day moving average the last several days – and potentially turning it higher soon – may be the signal to finally take a long position. Matrix could be entering the perfect setup to use a buy-stop, just above last week’s high of $10.00 a share. The beauty of this idea is further stock declines mean we won’t own it or participate in the losses. However, if enough buyers can push the quote north of $10, we can jump in and ride along. A short-term price target around the 50-day moving average in the $12-13 area is what I am trying to capture.
If you buy any Matrix shares, please use a 10% or 20% stop-loss order to keep your trading losses to a minimum, depending on your risk appetite.
I am not making a long-term call on the company’s future. It may be bright or not, basically a function of oil/gas fortunes and capital spending. Thanks for reading. Good luck trading the Matrix.
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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MTRX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This writing is for informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. This article is not an investment research report, but an opinion written at a point in time. The author’s opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. Any and all opinions, estimates, and conclusions are based on the author’s best judgment at the time of publication, and are subject to change without notice. Past performance is no guarantee of future returns.