Even in a choppy market, these cloud-computing companies are getting support from institutional investors, with this week’s buying spurred by recent M&A action in the sector, writes MoneyShow.com contributor Kate Stalter.
Enterprise software makers were in the spotlight Monday after SAP (SAP) said it would acquire SuccessFactors (SFSF) for $3.4 billion. The move is part of SAP’s strategy to migrate more of its software services to cloud-based platforms.
Even before that news, a few companies from the business-software subsector were showing good technical action. The general industry was already viewed with optimism, following Oracle’s (ORCL) October acquisition of RightNow Technologies (RNOW).
One name from the industry that bolted this week on the SuccessFactors news was Taleo (TLEO), gapping up nearly 20% Monday in monster volume to a new all-time high.
Taleo, which specializes in human-resources software, was one among smaller growth names in the 2009 rally. Shares continued trending higher in 2010 and in the early months of this year. However, the fundamentals weakened in 2010, with year-over-year earnings up by only a penny, growth of just 1%.
That picture has improved this year, and Wall Street expects 2011 to wrap up with income of $1.03, a 32% gain. For 2012, profit is seen growing at a rate of 10%.
Technically, the stock had been correcting since pulling back from an all-time high in May. It declined almost 44%, a fairly steep rate, although it’s common for growth stocks to drop more sharply than the major indices. The stock began etching the right side of that consolidation in August.
The stock is in buy range after its gap-up, but it wouldn’t be unusual to see a pullback now, as investors who bought in the past few months—as the stock was climbing higher—now take the opportunity to pocket ! some pro fits.
However, the huge buying is a vote of confidence in a company that’s also being viewed as an acquisition target, so once the stock digests some of the post-gap-up gains, it could be well-positioned to move higher.
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