Should you buy Harmonic Inc. after a breakout to a new high?
- Harmonic has gained 17% in a month, forcing a breakout.
- The company beat earnings estimates in the second quarter.
- Harmonic comes at a high valuation but remains attractive in the short and medium-term.
Harmonic Inc. (NASDAQ:HLIT) had a stellar month of September. The stock has returned by more than 17% amid a drop of 7% in the benchmark S&P 500 index. The stock has also been strong this year, returning 8.15% YTD.
Harmonic is an American tech entity offering server, video routing, and storage products. The company targets entities involved in producing and marketing video content via the internet or TV.
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Fundamentally, Harmonic has been growing revenues. The company reported an adjusted per share of $0.16 in the second quarter, from $0.05 per share the prior year. The street had anticipated just $0.09 per share. The revenue grew by 39% to $157.4 million or £148.5 million. The revenue was expected at $150.1 million or £141.6 million.
Harmonic breaks out above $11 but how attractive is it?
Harmonic had formed a double top at $11. It has broken past the resistance level and currently trades at $13. However, at the current price, valuation could be a concern. The company trades at a price-earnings multiple of 39 and a forward PE multiple of 26.9. That makes the stock less attractive.
We still need to be mindful that the stock attracted a lot of volumes following a breakout. That suggests that buyer interest remains high.
Adding the Bollinger bands, Harmonic has broken above the upper limit. A correction is likely, with potential levels to watch at $11.75 and $10.70. The $10.70 support coincides with the Bollinger Bands average and remains a crucial price action zone for Harmonic.
When to buy Harmonic
Consider investing in Harmonic on a retracement as it is still attractive. A long-term hold may be unfavourable considering the high valuation of the stock.