Eltek Ltd [NASDAQ: ELTK] was one of the biggest gainers in Wednesday trading. It gained by 326.83% to close the day at $7. However, it has eased up slightly in pre-market trading. This could be due to profit taking, after such a huge move in price.
The parabolic move followed strong numbers in the company’s Q1 results. The company has been implementing a turnaround strategy and so far it seems to be working. In Q1 of 2019, the company recorded a gross profit of $1,539,000 as compared to $444,000 in Q1 of 2018. The gross profits didn’t just increase, the percentage on revenues also went up. When the company made $444,000 in 2018, gross profits represented 5% of revenues, while the Q1 2019 figures represent 17.6% of revenues. The company has also reported a turnaround in its operating profits. In Q1 of 2018, the company reported an operating loss of $626,000, and it has managed to turn that into a profit of $433,000 in Q1 of 2019. Net profits are in the positive too, from a loss of $670,000 in Q1 of 2019. All this point to a successful turnaround strategy.
Over and above the quarterly results, ELTK has some solid fundamentals backing it up. For starters, it is Israel’s market leader in printed circuit boards (PCBs). It is well-known for its advanced PCBs and has clients in all major economies including the U.S, Europe and Israel. Its market leadership is its anchor for growth in its core value. It’s a positive indicator especially now that the company looks to be succeeding in its turnaround strategy.
From a look at the charts, ELTK is on a retracement on the 1-day chart. After hitting a high of $8.33, it formed a double top at this level and started to drop. This is an indicator that this price level could act as key resistance in the day. However, if it sustains Wednesday’s bullish sentiment, and pushes above $8.33, then there would a high probability that it could sustain its bullish momentum through Thursday trading. More long term, ELTK is in a bullish trend. On the 1-month chart, it has been gaining ever since it broke above key resistance on the 50-day MA at 2.70. This bullish sentiment is likely to be sustained by the company’s positive figures, and the success of its turnaround strategy. As long as the numbers keep getting better, this company’s long-term trajectory is likely to be upwards.
However, like all other stocks, ELTK carries some risks. One of the biggest risks is that some traders view this stock now as being over-extended from its huge 1 day move and the other risk is uncertainty in the market.