INFA (Long) - AI play with a robust base

Nov 16, 2023

Fundamentals

• The market right now is full of companies acting like prime AI bets. From what I can tell, INFA is one of the more legit ones, building an AI-powered platform for multi-cloud system
  
• The valuation is slightly stretched but that is to be expected in a hot sub-sector. Hence, we need to gauge it against the industry, where INFA is exactly at the average
• Sales growth has been reliable and strong over the past decade, and the firm is nearing profitability
  
• Debt is stable at 1:1 ratio with equity. One fun fact is that CEO's compensation is 32m a year; the average in the industry is 8m, That's a major red flag, but we do not really care in a 6-month window; just something to be aware of
  
• On this one though, we are here for the technicals
  

Technicals

• The technicals on this chart are gold
• Starting, as always, with a robust base which has accumulated over a longer time period
  
• The break out of the base came on news of blockbuster earnings, which is the kind of support a name like this needs
  
• Because of the positive news, the move was accompanied by higher-than-average volume as depicted on the graph
  
• Indicators also further support the break: (i) volume, represented by Chaikin Money Flow, has been showing divergences long before the move actually happened (orange circles) and (ii) a factor I consider crucial, a high relative strength against the market; the indicator is clearly breaking out and pointing higher
  
• Momentum is strong (stochastics) and supported by the rally in the broader indexes
  
• The stock clearly broke through all the moving averages; another important factor when looking for an uptrend with legs
  

Trade

• On the daily, the trade is slightly stretched. However, it still provides a good entry considering the proximity to the breakout line
  
• Ideally, the stock would oscillate around this line for a couple of days and let the moving averages catch up with the price
  
• It is up to you whether you wait or enter here. I choose to wait just because I feel the price action in the whole market needs to consolidate for a few days
  
• Caveat? The stock does not hold the line and breaks lower. However, considering the magnitude of the move, it is not unrealistic that this happens. In that case, I would wait for the price to break again and re-enter
  

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