Traders and Investors Could See Gains of 54% or More from This Small Stock

This tech stock tells of a classic "dot bomb" recovery story. But unlike most of its peers that recovered in the early years of the past decade, this stock is just now blooming, thanks to a recent surge in demand for its cloud-based communications services. This late recovery gives savvy investors time to cash-in.

After crumbling from an all-time high of $38 in February 2000 to a jaw-dropping low of $0.17 in February 2003, shares of this communications equipment company climbed back to $8 in December 2003. But soon after, the shares nose-dived again, tumbling to a low of $0.40 by October 2008.

The stock has been in a recovery mode since 2008. And on the week of June 6, shares hit a new multi-year high near $4. Technical and fundamental analysis suggest this stock could climb much higher.

Networked phone service specialists 8X8 (Nasdaq: EGHT) looks to be a "buy" in the short- and long-term.

In the past few months alone, the network phone-service specialist has added more than 1,000 new voice-over-Internet-protocol (VoIP) subscribers. As a result, the rapidly-growing company now serves more than 25,000 businesses.

Leaving large-scale telecommunications projects to industry leaders like Cisco (Nasdaq: CSCO), 8X8 occupies a unique market niche catering to small-to-medium-sized businesses.

These smaller-scale organizations are adopting 8X8's cloud-based phone services such as Virtual Office and Virtual Office Pro, because of the potential cost savings and productivity gains scored from outsourcing these telecom-based needs to 8X8.

As more companies jump on the cloud, 8X8's business model is catching on. The stock currently looks technically bullish.

It has advanced more than 220% in the past year, is on a Major uptrend and has been on an accelerated uptrend since August 2010.

During the June 6 week, the stock surged to a 52-week high near $4 on an Apple (Nasdaq: AAPL) takeover rumor. Although the rumor was unfounded, shares have maintained their strength and are currently trading near this recent high, around $3.45.

Testing resistance near $3.40, the stock appears close to bullishly completing an ascending triangle pattern. According to the measuring principle for a triangle, calculated by adding the height of the triangle to the breakout level, shares could easily hit a minimum price target of $5.36 ($3.48 – $1.60 = $1.88; $1.88 + $3.48 = $5.36) for a gain of 54%.

The stock could move much higher, however, as there is no historical resistance until around $8.

Fundamentally, the company shows solid revenue and earnings growth. For the most recently reported fiscal fourth-quarter and 2011 year-end (for the period ending March 31, 2011), revenue soared to record levels. Driven by an increase in new customers, fiscal fourth-quarter revenue rose 14.6% to a record $18.2 million, from $15.9 million in the year-ago quarter.

With sequential growth in all four quarters, fiscal 2011 revenue rose 10.7% to a record $70.2 million, from $63.4 million in the previous fiscal year. Analysts project 8.5% revenue growth for fiscal year 2012, totaling $76.1 million. By fiscal year 2013, analysts project revenue will increase a further 11.5%, to $84.9 million.

The earnings outlook is equally strong.

In the fiscal fourth-quarter, earnings per share (EPS) edged up by a penny, rising to $0.03 from $0.02 in the comparable quarter a year-ago. Fiscal 2011 EPS nearly doubled, hitting $0.10, up from $0.06 the previous fiscal year.

For the upcoming fiscal year, analysts project 8X8's earnings will increase 50% to $0.15. By fiscal 2012, earnings are expected to rise a further 40%, to $0.21 per share.
In addition to growth potential, the stock is also attractively valued, based on its five-year forward PEG ratio (price-to-earnings per share divided by growth rate) of 0.8. Generally, a PEG of 1 or less shows fair value.

Additionally, the company is in a strong cash position, with $18.4 million on hand and no long-term debt. This liquidity should give the company the financial freedom to continue researching and developing new cloud-based solutions.

Action to take –> A recent surge in demand for 8X8's cloud-computing services has helped pushed the stock higher. With solid technicals and fundamentals, traders looking to make a quick profit or investors looking to buy and hold should consider adding this attractive small-cap tech stock to their portfolios.

– Deborah O'Malley

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This article originally appeared on StreetAuthority