Technology stock

OneSpan: Best Price Positioned Tech Stock (NASDAQ: OSPN)

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Investment thesis

Rapid advances in technology in communications, information processing, organization, and logistics create frequent opportunities for uneven market prices among data systems service stocks. This makes regular reviews of these (many) issues generally a productive field for short-term capital gains. But the realization requires the coordination of various tools of analysis and communication.

Among the best potential price movers right now is OneSpan Inc. (OSPN).

The description

“OneSpan Inc., together with its subsidiaries, designs, develops and markets digital solutions for enterprise identity, security and productivity worldwide. Their Digipass hardware authenticators support digital authentication and signatures for applications running on PCs, tablets and mobile phones; and authentication servers, which allow clients to administer a high level of access control. It sells its solutions through its direct sales force, as well as through distributors, resellers, system integrators and original equipment manufacturers. The company was formerly known as VASCO Data Security International, Inc. and changed its name to OneSpan Inc. in May 2018. OneSpan Inc. was founded in 1991 and is headquartered in Chicago, Illinois. OneSpan Inc. is a subsidiary of Guidewire Software, Inc.

Source: Yahoo Finance

OSPN Growth Estimates

Source: Yahoo Finance

Big Picture: Risks vs. Rewards

Figure 1

Reward risk trade-offs

(used with permission)

The trade-offs here are between short-term upside price gains (green horizontal scale) considered worth protecting by market makers with short positions in each of the stocks, and past actual price declines experienced during of the holding of these shares (red vertical scale) . Both scales are percent change from zero to 25%.

The intersection of these coordinates with the numbered positions is identified by the stock symbols in the blue field to the right.

The dotted diagonal line marks the points of equal upward price change predictions derived from Market-Maker [MM] hedging actions and actual worst-case price declines from positions that could have been taken as a result of earlier MA predictions like today’s.

Our primary interest is the onsite OSPN [1]. A “market index” standard of reward-risk trade-offs is offered by SPY at [2]. Other actions on the “frontier” of the reward-risk trade-off are FISV at [9], and IAC at [6].

These predictions are underpinned by the self-protective behaviors of MMs that typically need to put company capital at temporary risk to balance the interests of buyer and seller by helping capital-intensive portfolio managers adjust multi-billion dollar portfolio volumes. Their protective actions daily define the magnitude of likely expected price changes for thousands of stocks and ETFs.

This map is a good starting point, but it can only cover some of the investment characteristics that must often influence an investor’s choice of where to invest their capital. The table in Figure 2 covers the above considerations and several more.

Compare alternative investments

Figure 2

OSPN Comparison

Source: Blockdesk.com (used with permission)

Experienced readers familiar with the format and content of Figure 2 may wish to skip the explanatory paragraphs and proceed directly to “Specific investment advantages”

Column price range prediction limits [B] and [C] be defined by MM’s hedging actions to protect the firm’s capital which must be exposed to the risk of price changes from volume trade orders placed by large $”institutional” clients.

[E] measures the potential upside risks for the short MM positions created to fill these orders and rewards the potentials for the buy positions thus created. Past forecasts like this provide a history of relevant risk of lower prices for buyers. The most severe actually encountered are found in [F], during waiting periods with the aim of reaching [E] earnings. This is where buyers are most likely to accept losses.

[H] indicates what proportion of the [L] sample of similar past predictions made gains by causing the price to reach its [B] target, or be above his [D] cost of entry at the end of a maximum holding period limit of 3 months. [I] gives the net gains-losses of those [L] experiences and [N] suggests how much [E] can be compared to [I].

Other reward-risk trade-offs involve the use of [H] win odds with loss odds 100 – H as weights for N-conditioned [E] and for [F], for a combined yield score [Q]. The typical job retention period [J] to [Q] provides a symbol of merit [fom] ranking measure [R] useful in portfolio position preference. Figure 2 is ranked on R among candidate titles, with OSPN ranked first.

Specific investment advantages

OSPN’s price performance is primarily driven by its ability to achieve a high proportion (85%) of MM sales targets [H] while meeting only a minimum [F] intermediate price declines (-5.8%), as indicated by its superiority [T] Risk-reward ratio (4.8) and favorable Figure 1 location. His quick accomplishments of 8-week detention period add to his [R] (41 bp/day) asset benefit.

Other diversified alternatives, like the mid-market index ETF SPY, may have a similar price drop [F] experiences, but pay a cost of diversification in size of its [E] sell targets. That, plus another two weeks of detention by SPY, eliminates any ability to compete in the [R] wealth building portfolio position contest.

The other issues in the table in Figure 2 relate to infrastructure software competitors. The best known and most direct adversary is the ANSS.

On the same comparison criteria, the only one of them approaching the of [R] of OSPN is QTWO with a win odds of 91 but average realized wins below the size of the leader. Their CAGRs of 224% and 109% are multiples of SPY at 25%.

Among the top 20 of today’s 3,435 MM price range predictions, the largest realized gains [I] of +16.3% and shorter holding periods (38 days) increase their average CAGR to 239%, barely competitive with the OSPN.

Recent Trends in MM Price Range Predictions

May’s pullbacks from the high prices at the start of the year provide OSPN with better comparisons of competitive investments versus alternatives. Figure 3, unlike “technical analysis charts” shows daily forecasts likely future price ranges, rather than pass real daily prices.

These predicted price ranges are divided into upside and downside outlooks by the closing price of the current day’s forecast issue. The range index indicates what percentage of this range is below the current market price.

picture 3

OSPN Chart

(used with permission)

The lower “thumbnail” image in Figure 3 shows the distribution of daily MM forecasts over the past 5 years in terms of the then-current market price quote for PTC relative to its upper and lower bounds. The current 6 indicates that only 6% of the total forecast range is downside, while the remaining 94% is upside, more than 15 times the downside.

The distribution of these Range Index [RIs] indicates that higher prices are the norm compared to previous experiences of RI 6.

Conclusion

OneSpan Inc. (OSPN), as perceived by the market maker community, appears to be one of the most attractive high-tech software support stocks currently for short-term capital gain among many competitors leading.