After two years of writing weekly 52-week highs and lows articles, I've come to wonder if the number of companies hitting new highs or lows is a proxy for how the market itself is going. For the past six months – with the exception of a few down days – we've consistently had many more businesses hitting new highs than we have hitting new lows.
Here are three on the latest (long) list of winners:
Kathmandu Holdings Ltd (ASX: KMD) – last traded at $1.72, up 20% for the year
Despite being offered shares in the Initial Public Offering (IPO) some years ago, I found and still find it hard to get behind Kathmandu. The group has had its troubles, but shares rocketed recently when the company announced that its full-year profit would leap to '$32 million to $35 million', up from $20.4 million in the previous year.
On that basis, Kathmandu could be a value play with a Price to Earnings (P/E) ratio of around 10 times full year earnings. Management stated that 'product newness and careful management of promotion activity' resulted in a substantially better gross margin that boosted profits despite only a 2.6% increase in constant-currency sales for the year to date.
Appen Ltd (ASX: APX) – last traded at $2.98, up 320% for the year
Appen might be another 'one that got away' that hasn't quite got away – yet. Shares in the language technology company soared recently after another repeat purchase order was announced, this time for natural language services to Microsoft's Bing search engine.
With the world becoming increasingly globalised and a majority of the world's population not speaking English, companies must increasingly localise and personalise their services for customers, and that includes using natural language services provided by companies like Appen. At 34 times earnings, Appen looks a little pricey but it has a competitive offering and patient investors might benefit from taking a small stake.
Aconex Ltd (ASX: ACX) – last traded at $8.08, up 124% for the year
Like the above two businesses, Aconex shares soared most recently after the announcement of a contract with ExxonMobil that would potentially see the company's software made available to all ExxonMobil companies and affiliates. Investors rallied behind the company, but its latest quarterly report showed a different story, with $4.8 million in operating cash flows from a $1.6 billion dollar business.
With its growth, Aconex just might go on to justify today's valuation but the question for investors should not be whether it can justify its value, but whether it can generate additional value for the buyer on top of the purchase price. Such a proposition demands closer research.
