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Yesterday was a rough day for stocks, especially the tech-heavy Nasdaq. The index lost over three percent and suffered its worst day since November 2011. Despite the rough patch, I found a stock that looks to have found support.
Domain registration company VeriSign (NASD: VRSN) closed at $50.18 yesterday and this could be a good sign for the company’s investors. The $50 level acted as resistance several times at the end of 2012 and again in 2013. The stock finally moved back above 50 last September—I say back above 50 because the stock had been there before, but that was all the way back on 2001.
Many times a resistance point becomes support once it is able to break through. The reason for this is human nature. Investors see the resistance and hesitate to buy the stock. Once it breaks through, they tell themselves that they will buy it when it comes back down to the resistance point. In the case of VRSN, the stock moved all the way up to $62.96 before the recent pullback.
VeriSign has plenty of doubters based on the sentiment indicators. The current short interest ratio is 13.7 and that is one of the highest I have seen in a while. As of April 1, the most recent short interest report, there are over 23 million shares sold short and that number has increased steadily over the last month.
Short sellers aren’t the only ones down on VRSN either. There are nine analysts following the company and only two have the stock rated as a “buy” while six have it rated as a “hold” and one has it rated as a “sell”.
VeriSign is scheduled to announce earnings later this month and the analysts expect the company to earn $0.63 a share for the quarter. If the analysts are accurate, that would be an increase over the last quarter and the same quarter a year ago. In both of those cases the company earned $0.58 per share.
With the potential support at $50 and the bearish sentiment toward the stock, it won’t take much for the stock to take off. If the stock starts to climb, the short sellers will have to start buying to cover and that will add buying pressure to the stock. If the company were to beat the analyst estimates, we could see a really sharp rally. There would also be a good chance for a few upgrades out of the skeptical analyst crowd.
The stock is the most oversold it has been since November 2012, but oversold can always become more oversold. While I like the stock at this price, I would give it some room to play out. I would buy it here with a target of $65 or more in the next 6-9 months. I would put a stop in at the $45 level just to protect the downside.