NQ Mobile Is a Hyper-Growth Opportunity

NEW YORK (TheStreet) -- I'm going to make a case for hyper-growth stocks.

My definition for hyper-growth is a stock that Wall Street analysts project will have double-digit growth in both sales and earnings. I'll offer the premise that if rising revenue and earnings are eventually reflected in a rising share price, then I'd like a portfolio loaded with those stocks that have the highest growth in revenue and earnings.

Using stock screeners, I looked for stocks projected to increase earnings by an annual rate of 25% for the next five years that are hitting the most frequent new highs. My screening came up with NQ Mobile ( NQ), formerly NetQin Mobile, a packaged software company with a market cap of $517.08 million and sales of about $21.825 million in the last 12 months.

It describes itself as a global mobile security privacy and productivity software company co-headquartered in Beijing and Dallas and trades in ADRs.

Of course I'd expect the stock to increase faster than the general market as gauged by the Value Line Index. Sure enough, the index increased 10.79% in the last six months while NQ Mobile gained 126.30% during the same period:

Let's look at some of the other factors:

Fundamental factors: Its market cap is $517.08 million and the stock has been trading around 3.7 million shares a day recently. The stock has a P/E of 98.33.

Analysts project revenue to grow 102.7% this year and another 40.7% next year. Earnings are estimated to increase 57.6% this year, an additional 26% next year and continue to increase by 40% annually for the next five years.

Technical factors provided by Barchart: The stock has a Trend Spotter buy signal and 96% technical buy signals. It is currently trading above its 20-, 50- and 100-day moving averages and advanced 20 times in the last three months for a gain of 229.45%. Barchart computes a technical support level at 16.53 and the Relative Strength Index is 68.96%. It closed Monday at $18.53 with a 50-day moving average of 11.76.

Investor interest: Wall Street analysts issued two strong buy and two buy recommendations while institutional ownership is a low 8.7%. Only 76 individual investors on Motley Fool have given a opinion on the stock but they gave a 61% vote for it to beat the market. The short interest in growing from around two million shares in January to over 5.2 million shares recently.

Comparisons: In the last six months, NQ was up 186.23%, with Microsoft ( MSFT) up 13.21%, Oracle ( ORCL) down 8.70% and SAP ( SAP) down 6.20%:

Microsoft: Market cap $264.98 billion with revenue projected to grow 6.60% next year and earnings to grow 8.63% annually for the next five years. Institutional ownership is 69.39%.

Oracle: Market cap $152.39 billion with revenue predicted to grow 5.20% next year and earnings estimated to increase 10.62% annually for the next five years. Institutional ownership is 60.23%.

SAP: Market cap $90.3 billion with revenue expected to increase 9.30% next year and earnings projected to increase 11% annually for the next five years. Institutional ownership is only 4.01%.

Summary

When you compare hyper-growth stock to the industry leaders, it's like comparing battleships to jet skis. The smaller stocks are more nimble and can turn on a dime, so you need to use charts that are sensitive to change.

My favorite charts compares a stock's price to its 20-, 50- and 100-day moving averages, Barchart's proprietary Trend Spotter buy/sell signal and its 14-day turtle channel. Using those parameters give me a good sense of a stock's momentum and I usually bail when it drops below its 50-day moving averages.

If the stock's price keeps gaining, I look for the short interest to bail fast and cover positions.

At the time of publication, the author did not hold positions in any of the stocks mentioned in this article.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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