A gain of 109.51% in 2019 for shares of RingCentral, Inc. (RNG) tells of story of big buy demand for the shares. This buying is very unusual and has been very consistent in 2019. This buying was seen before the latest news that sent RingCentral shares surging (a deal with Avaya). A great way to uncover tomorrow's winners is to look for great stocks seeing big buy activity, and RingCentral could be just the opportunity.
Smart money managers are always looking to bet on the next outlier stocks … the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares … the big money.
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 2019, RingCentral has seen relentless demand, causing the stock price to more than double.
For Mapsignals, when we look for an entry on a leading stock, we look for big money signals. Just to show you what our big money activity signals look like, have a look at all of the big money (unusual institutional) signals RingCentral stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. These signals are rare, but when they come in clusters like below, you can see a rapid move in the stock price:
In 2019, RingCentral stock has logged 17 big money buy signals, indicative of buying in the shares (see chart above). This shows that a lot of demand can reward shareholders. It's been happening quite a bit recently. These data points suggest that big money appetite for the stock is high.
If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Based on history, the odds suggest that this stock is poised for gains. The big money is always looking for an opportunity to buy shares on the cheap. It's all about playing the odds by not fighting the trend.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by big money signals (outsized institutional activity). We are looking for the big money bets because big money moves stocks. By studying these data points, we can make an educated guess as to which stocks 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 long candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. Here are a few areas in which RingCentral stock has grabbed our attention year to date (YTD):
- YTD outperformance vs. market: +90.6% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. technology sector: +78.81% vs. Technology Select Sector SPDR Fund (XLK)
- Recent big money buy signals
Now, we take it a step further and score the best stocks showing big money trading activity. Below you can see the historical times since 2017 when RingCentral made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. What jumps out in the chart below is how the stock has steadily lifted alongside monster demand:
On top of a long-term 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, RingCentral's year-over-year (YoY) numbers are very strong:
- Q2 2019 YoY revenue growth: +34%
- Q2 2019 YoY non-GAAP operating profit: +43%
RingCentral shares are breaking out in a weak tape for the market. The company is growing fast and inking meaningful partnerships.
We like the long-term story of the stock. The narrative for RingCentral and other high-quality software stocks is one of growth in the years ahead. We are always on the lookout for great companies pressing higher year after year. The best companies in a group tend to outperform over the long run. Software stocks have been one of the strongest groups in recent years. All of this points to a long-term opportunity for the stock.
The Bottom Line
RingCentral stock is breaking out with buying pressure. Our big money indicator is signaling that we should take notice. Shares could be positioned for more upside. Given the historical growth in share price and growing fundamentals, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds no position in RingCentral shares at the time of publication.