The shareholders of Data Storage Corp (OTCMKTS: DTST) should have appreciated the recent spike in the stock. From the $0.10 mark, the share price increased to touch the $0.37 level delivering more than 200% stock returns. With that in mind, market participants should also note the stock volume. More than 7 million shares changed hands hitting a new 52-weeks record that can be seen in the stock chart below:
In our opinion, the stock needs to close above the $0.48 mark to affirm the upward trend. With the stock volume at those levels, the buying pressure seems very significant. Thus, further price increases are likely. On the downside, closing below the $0.30 mark would be very bearish, as it is a previous psychological resistance. While the recent upside momentum does not suggest downward movements in the share price, we still need to watch out. This is a small-cap stock, and any new information about the company could push the share price down again.
Business and Recent Growth
Headquartered in Melville, NY, with additional offices in NY and Warwick, RI, Data Storage Corporation focuses on cyber security solutions, cloud and compliance. DSC provides Infrastructure as a Service, Disaster Recovery as a Service and Email Archival, and Compliance Solutions. DSC’s clients save time and money, gain more control and better access to data, and enable a high level of security for their data.
Don’t you really understand the business of DSC? Check the following video:
The company seems to be growing at a high pace not only organically, but also through the acquisition of other competitors. The most remarkable in the recent history is the acquisition of assets of ABC Services, Inc. and ABC Services II, Inc., as well as the acquisition of Secure Infrastructure and Services LLC in October 2016.
As a result of these transactions, DSC was able to expand into cyber security solutions and hybrid cloud solutions with the ability to provide equipment and expanded technical support. In addition, the market reacted by pushing up the share price from the $0.03 mark to around $0.13 in a very short period of time, as market participants were expecting more revenues consequent to these acquisitions. We will share the same thesis about DSC.
After the announcement of the transactions in 2016, the company and the stock remained very calmed. The stock traded around the $0.12 mark for almost two years, until the year 2018, when DTST became a very active name once again. The following is what you need to know.
On January 16, 2018, Data Storage released the planned expansion of its IBM Power Cloud, Disaster Recovery and Business Continuity distributorships in the U.S. and Canada. The company waked up the market releasing that it intends to add up to 100 new partnerships throughout North America and will provide distributors the ability to offer DSC’s enterprise-level infrastructure cloud-based solutions to their clients.
The management was very optimistic about the future expansion:
“With DSC’s planned expansion, our new distributors will have the ability to increase their reach into their existing clients who desire to migrate their IBM i (aka AS400), AIX and Power systems to the cloud or eliminate their tape backups in lieu of DSC’s enterprise-level recovery solutions for their disaster recovery and business continuity requirements.” Chuck Piluso, CEO of DSC said.
The market reaction that followed this news was very significant. Shareholders received stock returns exceeding the 200% stock returns in a short period of time, and more than 2 million shares were traded. The price touched the $0.48 mark before retracing back to $0.24, as the shareholders sold shares to capture the overwhelming stock profits.
That’s not all. On January 19, 2018, the company also released a new partnership with data center provider TierPoint, which will allow DSC to deliver specialized services and applications to its clients. Furthermore, DSC and TierPoint remarked that both partners have collaborated in the design of a virtual cloud platform that allows the company to offer scalability for capacity and performance on demand for various types of workloads for IBM users. This includes production capacity, virtualized capacity, disaster recovery (DR), and replication workloads.
Financials: The market is expecting large company growth
With a market cap equal to $48 million, EV/EBITDA ratio of 26x and 120% quarterly revenue growth (yoy), the market is expecting a lot company growth in the future. We reached to this same conclusion after noting that the book value per share is about $0.02.
Then, what do we look at in the new year 2018? The most important figure that we need to study closely is the amount of annual revenues:
If the market is right, the revenue momentum will continue in 2018, and the share price could creep up. On the contrary, if the revenues don’t meet the expectations of investors, we will be expecting the share price to decline sharply. We encourage players to stay tuned to the next quarterly reports, which will contain the most important information to assess this company.
What’s going on right now?
In April 2017, the market pushed up the share price after the company put out that the new annual report would be ready soon:
“The Company’s Annual Report on Form 10-K for the period ended December 31, 2017 cannot be filed within the prescribed time period because the Company requires additional time for compilation and review to insure adequate disclosure of certain information required to be included in the Form 10-K. The Company’s Annual Report on Form 10-K will be filed on or before the 15 th calendar day following the prescribed due date.“
What’s our take? In our opinion, the market participants are expecting further increases in the revenue line and decided to acquire shares even before the figure is released. While we believe that this is very risky, some are making overwhelming returns.
Stay tuned to this name; the outlook for 2018 seems exciting.