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KEMET Corporation: An Undervalued Opportunity With 40% Upside Potential

Summary

  • KEMET Corporation has the potential to produce 40% stock price gains in the short-term.
  • Technical and Fundamental evidence supports a significant breakout with validated price patterns and EPS growth Q/Q higher than 300%.
  • Consensus analyst price target of 20.75 could be exceeded with continued strong performance and Sales Q/Q growth at 61%.
  • The valuations and key financial ratios are particularly strong going into 2018 with P/E of only 3.57 driven largely by rapid earnings growth.

In the Week 2 Breakout Forecast for January 5th, I identified KEMET Corporation (NYSEARCA:KEM) as a breakout stock at an initial share price of 16.57. Today I am writing a more in depth analysis of the stock and why I think it can reach a price target of $24 per share with short-term price growth of over 40% from my initial purchase point.

KEMET Corporation, together with its subsidiaries, manufactures and sells passive electronic components under the KEMET brand worldwide. The company operates through two segments, Solid Capacitors, and Film and Electrolytic. Its products include tantalum, multilayer ceramic, film, electrolytic, paper, and solid aluminum capacitors, as well as EMI filters.

The company offers its capacitors for use in the automotive, communications, computer-related, industrial, consumer, military/aerospace, and alternative energy industries. KEMET Corporation sells its products to original equipment manufacturers, electronics manufacturing services providers, and electronics distributors. The company was founded in 1919 and is headquartered in Simpsonville, South Carolina.

Technical Analysis to support a substantial breakout:

One of the most common and reliable technical formations is called the Head and Shoulders pattern. The pattern works well for identifying tops and the inverse pattern is also quite effective for finding bottoms. What are seven confirming characteristics of a Head and Shoulders Bottom?

  1. Stock was in a prior down trend: Yes - in early November the stock declined from 26 down to 14.

  2. The low of the left shoulder formed with a large spike in volume on a sharp down day: Yes - Largest volume spike on the chart corresponds to the fall of left shoulder.

  3. A reaction rally formed the first point of the neckline: Yes - a positive price rally formed the first point of the neckline at 17 on the chart.

  4. The price decline to the lows that formed the

This article was written by

JD Henning profile picture
18.57K Followers

JD Henning is a Finance PhD, MBA, investment adviser, fraud examiner and certified anti-money laundering specialist with more than 30 years trading and investing stocks and other securities. JD runs Value & Momentum Breakouts where he identifies identify breakout signals and breakdown warnings using technical and fundamental analysis.

Signals from his proprietary Momentum Gauges® not only alert subscribers of market changes, but the strength of markets for short term breakouts or breakdown warnings across 11 different sectors. Top stock and ETF selections use technical and fundamental systems in proven financial studies. Value & Momentum Breakouts is the place to build your own optimal portfolio mix with a community of like-minded investors and traders. Features include a Premium Portfolio, bull/bear ETF strategy, morning updates and an active chat room. Learn more.

Analyst’s Disclosure: I am/we are long KEM, DNR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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