A gain of 20.75% in 2019 for shares of CyberArk Software Ltd. (CYBR) tells a story of a stock gaining alongside a high amount of unusual trading activity. In this case it's bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. Over time, we've learned how stocks with a history of strong fundamentals tend to rise in price. Smart money managers are always looking to bet on the next outlier stocks … the best in class.

The main criteria we look for when betting on upside in a stock bouncing after a period of pressure is a history of strong fundamentals, strong technicals and big potential buying in the shares. I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall.

For most of 2018, CyberArk stock was in a steady uptrend. Coming out of the monster sell-off in the market in late 2018, shares have outperformed with unusual buy signals. In our view, pullbacks = opportunities, especially a pullback we see as mechanical in nature.

For Mapsignals, when we look for an entry in a leading stock, we want to see an increase of potential buying. Just to show you graphically what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals CyberArk stock has made over the past year. Clearly, there has been a lot of green. In our experience, an investor would not want to be on the wrong side of trading activity like this. This stock is notable because shares move based on supply and demand. What is really catching our eye now is the cluster of recent UI buying:

Chart showing the unusual institutional (UI) signals made by CyberArk Software Ltd. (CYBR)

In 2019, CyberArk stock has logged five unusually high-volume days, indicative of buying in the shares starting on Jan. 25, 2019 (see chart above). This points to CyberArk gaining in an unusual way, which suggests that demand for the stock is increasing. If you are going to make a bet on the direction of the stock, it is prudent to pay attention to how the shares are trading. Just like you don't want to fight the trend, you also do not want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When we decide on a strong candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. Below are a few areas that grab our attention when it comes CyberArk stock:

  • Year-to-date (YTD) outperformance vs. market: +12.04% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. sector: +11.53% vs. Technology Select Sector SPDR ETF (XLK)
  • Recent bullish unusual trading signals

Now, we take it a step further and score the best stocks showing unusual trading activity. These are the outliers. Below, you can see the historical times since 2017 when CyberArk stock made the top 20 report for Mapsignals. These are the highest-rated signals in our stock universe. Clearly, we caught the big run-up beginning in 2017. That's exactly what our process is designed to do. We'd even venture to call this stock an outlier:

Chart showing the buy signals made by CyberArk Software Ltd. (CYBR)

On top of a technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, CyberArk's latest earnings report showed year-over-year growth:

  • Q3 2018 year-over-year (YoY) revenue growth rate: +31%
  • Q3 2018 YoY non-GAAP net income growth rate: +100%

CyberArk is breaking out along with other high-quality software names. We believe that the current level for the shares is in position for further upside. The narrative for CyberArk and security software companies is one of dominating their space. We are always on the lookout for great companies showing usual trading activity in the shares. The best companies tend to trend higher over the long run. All of this points to a long-term opportunity for the stock.

The Bottom Line

CyberArk stock represents a potential buying opportunity for the long-term investor. Given the lift in price, historical fundamental outperformance and recent unusual buying signals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: The author holds no position in CyberArk shares at the time of publication.

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