Looking for Relative Strength? This Little-Known Stock Checks the Boxes
The AI bounce hunters are struggling. I’m focused on stocks with strong charts and fundamentals, like this one.
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Apple (AAPL) and Palantir Technologies (PLTR) are both still negative after their earnings beats last night, but they have bounced off their opening lows and aren’t having much impact on the broader market. Breadth is running about 46% positive, and most sectors aren’t doing much. The VanEck Semiconductor ETF (SMH) is the exception, with a gain of about 2.8%. That is likely a response to comments on Apple’s call about the cost of memory chips and the likelihood that it will stay high.
The SPDR S&P Biotech ETF (XBI) has bounced back 2.5% after losing the same amount on Monday. Biotech is a good illustration of how bumpy the rotation has been. There are some trends, but they aren’t smooth, and that makes it much more difficult to find names that can be held in size.
In Search of Relative Strength
My primary focus right now is finding new names with relative strength. Far too many traders are trying to catch bounces in the struggling AI names, and they have been having a hard time. The data center group, with names such as Nebius Group (NBIS), CoreWeave (CRWV) and TeraWulf (WULF), is a good example.
One name that came up on my relative strength scan is Paysign (PAYS). It has held up well and is sitting on top of its 50-day simple moving average. When I find a chart like this, I dig into the fundamentals and look for potential catalysts. Here is what I found.
What Paysign Does
Paysign has two businesses. One provides prepaid debit cards that plasma donation centers use to pay donors. The other runs copay assistance programs that drug companies use to cover a patient’s share of the cost of expensive medications.
The stock has more than quadrupled over the past seven months on the strength of the copay business. After pulling back to its 50-day moving average last week, it could be offering an attractive entry point ahead of earnings on Monday, Nov. 9.
The debit card business is the company’s cash cow. Paysign loads roughly 45% of the plasma donor payments in the country onto its cards and collects a fee each time a card is used. The number of plasma centers it serves fell to 561 from 607 a year earlier, but plasma revenue still grew 21% in the June quarter.
The copay business is the growth engine. When a drug company offers a coupon that covers a patient’s copay on a specialty drug, insurers and pharmacy benefit managers have found ways to keep that money without applying it to the patient’s deductible. Paysign’s platform runs coupon programs designed to stop that.
Pharma revenue grew 89% in the June quarter and now makes up more than half of total revenue. It also carries better margins than the plasma business, so the growth in pharma is lifting profits faster than sales.
The June quarter was the second in a row to come in above the top of the company’s own forecast. Earnings were $0.11 per share against an estimate of $0.06, and revenue was $28.3 million against $26.4 million expected.
Management raised its full-year revenue outlook to $114 million to $117 million from $106.5 million to $110.5 million. The adjusted operating margin rose to 21% from about 7.5% a year earlier, and the company has $27 million in cash and no debt.
What to Watch on Nov. 9
Management forecast that its active copay programs, which stood at 148 at the end of June and 157 by the August call, would reach 165 to 170 by the end of September. New programs are added most heavily in the fourth quarter, so the report should show whether the September count landed in that range and what management expects for fourth-quarter launches.
Management has also already warned that fourth-quarter profits will be weaker because of seasonal patterns, taxes and hiring. So a soft-looking fourth-quarter earnings forecast shouldn’t come as a surprise.
The program count is the number that matters. The 2027 outlook doesn’t come until March, and that will likely decide whether the stock keeps trending higher.
The Plan
The stock peaked on Oct. 20 and has spent the time since digesting its gains, finding support at its 50-day moving average. Since the report comes Monday after the close, we’d look to start a position for clients at Hammerhead Financial near the 50-day and size it so a bad reaction means a manageable loss.
After the report, my plan depends on the program count. If the company hits 165 or better and talks up fourth-quarter launches, we’d add on a move back through $15. If the count comes in light or the outlook for fourth-quarter launches is weak, we’d take a stop and move on.
I’m looking hard for other stocks with this combination of strong fundamentals and a good chart. They are developing, and if market conditions improve from here, we should have some good choices.
At the time of publication, Rev Shark was long PAYS.
