Does Tech Data (TECD) Have Room to Run Higher?

"Stocks Under Rocks" is designed to introduce you to some lightly-traded equities that may not attract much attention or press but that could be poised for gains in the short or intermediate term.

Just the Facts

Launched in 1974 in Clearwater, Florida, Tech Data (TECD) has worked its way into the Fortune 500 and is now the largest public company in the Sunshine State. The company is in the IT business, distributing its products and technical support services to retailers, marketers, and value-added resellers (VARs) in more than 100 countries. Despite its growth, Tech Data’s market cap is relatively small at $1.6 billion and average daily volume hovers around 850,000 shares.

In its last earnings report, TECD reported per-share results of 63 cents, a whopping 29 cents better than the Street expected. Gross margin ticked higher to 5.28% from 4.86% but remain slim as it is hard for a distributor to increase margins by any notable degree. TECD also has a solid balance sheet with cash per share of $12.64.

Touring the Technicals

TECD is trading within 13% of its 52-week high, which is probably its biggest risk factor right now. The tech sector as a whole is likely not out of the woods at this point, which could hinder upside for technology names. TECD has basically doubled in value since mid-March and has been consolidating above the 30 level for the last several weeks, using its 10-week moving average as support. In May, the shares hurdled through their 20-month moving average, which had acted as resistance since late 2007.

TECD could be a candidate for a cash-secured put if you do not expect a lot of upside but also think the stock should hold current levels. The August 30-strike put (out-of-the-money by about 6%) is currently bid at 75 cents, asked at $1.00.

Etc. Etc.

The stock has captured some modest attention from short sellers; currently, 6.5% of its available float is sold short, leaving open the possibility of a short-covering scenario. The short-interest ratio for TECD (number of shorted shares compared to average daily volume) stands at 3.5.

Additionally, just two of the six analysts following TECD have named it a "buy." From a contrarian perspective, this could indicate that TECD remains underloved. Future upgrades could provide short-term catalysts for a bounce in the shares.

If you don’t have a taste for this equity, check out past Stocks Under Rocks articles, Jud Pyle’s Volatility Overlays, or the daily Trading Ideas column.