Q: What do you do about a stock like DRX? It has signed a nice contract which has caused the stock to pop 20%. Looking back to 2024, the stock had a nice run, got hit by tariff news and was trending down 9 months and now its getting its mojo back. The downtrend has broken to the upside now and fundamentals have turned positive. What are your thoughts going forward and do you see an investor re-entering the stock?
In general, when you see a company like this rocket higher, get dragged down by fundamentals/external factors (tariffs, etc) and now are recovering, how do you approach these kind of situations? Would you be a buyer again now and do you see the stock heading back up to its old highs? Thanks!
In general, when you see a company like this rocket higher, get dragged down by fundamentals/external factors (tariffs, etc) and now are recovering, how do you approach these kind of situations? Would you be a buyer again now and do you see the stock heading back up to its old highs? Thanks!
5i Research Answer:
We think news like this is material and warrants at least re-visiting the thesis. The contract itself is large but perhaps more importantly, it offers multiple years of revenue visibility for the company which gives them an ability to think a bit longer term and investors like this visibility as well, offering a potential to reward it with a higher multiple.
In situations like these, however, the one thing to consider is if it is a one-off or if more growth potential is possible going forward and if the past problems the company faced are structural or if they were more one-time issues out of the company's control.