Is Colfax Corp Headed for a Breakout?

Colfax Corporation (CFX) is a diversified technology firm that produces welding equipment and medical devices. Its fabrication technology unit is a leading manufacturer of equipment and consumables used in welding, cutting, and joining applications.

Its medical technology segment makes medical devices, including orthopedic braces, reconstructive implants, and other products used for rehabilitation, physical therapy, and pain management.

The company is benefiting from its focus on product innovation, a healthy business system, and its cost-cutting initiatives. This led to a strong quarter, where CFX outpaced both its earnings and sales estimates. CFA has a current ratio of 1.6, which indicates it has more than enough liquidity to handle short-term debt.

In terms of growth, its EBITDA has grown an average of 48% a year over the past three years. Plus, analysts forecast earnings to rise 34.1% year over year in the current quarter. This has led to a Growth Grade of A in our POWR Ratings system.

Based on its forward P/E of 21.41, its stock appears a tad overvalued. The stock showed bullish momentum from November to March, but performance has been mixed since, as shown in the chart below.

Take a look at the 1-year chart of CFX below with added notations:

 Chart of CFX provided by TradingView

After a steady rally up into its March peak, CFX has struggled to get past the $50 resistance (red) area. That level is also preventing the stock from hitting new 52-week highs. CFX has dropped back again, but traders should watch for a possible return to the high.

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The ideal long position on the stock would be on a breakout above the $50 level, with a protective stop placed below the entry point.

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CFX shares were unchanged in premarket trading Tuesday. Year-to-date, CFX has gained 23.35%, versus a 20.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More…

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