To The Moon

It has been a while since my last update in August last year on EOS. Many things have changed since then. Decided to do a check in again on the status of EOS and discuss the possible ways forward for the company.

For those who have followed EOS or my articles, you will know that EOS operates in the defense and space sectors. Defense industry is supposedly a recession proof industry, so when a company in the industry runs into trouble, there's often than not fundamental flaw in the way it is run.

Many who had read my old articles would know I have followed this company for some time. I am not ashamed to admit that I have rode the company shares all the way down. This article is not about me, so I will not discuss the reason here. I just wanted to be transparent that I have vested interests in the company.

A new CEO just joined the company in my last update, so we didn't know how he would perform. Since the last update in August, EOS has reviewed its entire structure. As a result of the review, it has given up its crown jewel, SpaceLink and streamlined its work force. 

More importantly, the review has resulted in EOS to focus on its existing business line and responding to customer's procurement needs instead of anticipating orders through customer 's planning documents (don't ask me why they had done this previously). Along the way, its major shareholder, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), has supported its restructure plan by providing new funding, refinance and extending the maturity date of its debt facility.

Just a brief of what SpaceLink is about!

In the latest reporting season, EOS reported a loss of $53.6M from continuing operations compared to a profit of $6.7M same period last year. If the loss from SpaceLink was included, that loss would be $115.6M! Readers can read up the rest of its financial report. The key here is in order to survive, it has to cut off SpaceLink and reduce its other losses. 

The restructuring activities in the last two quarters were doing exactly that. Recent days, EOS reported two contracts win, both from Ukraine. The first contact win was even higher value than its market capitalisation!

Let's visit some EOS charts before I wrap up my update.

Daily chart (Volume secondary chart)

Daily chart (RSI secondary chart)

First up, the latest trading daily charts. As I typed, correction is already underway after the recent rallies. The correction has been expected. I have  illustrated two charts. RSI in the 2nd chart shows that EOS was at overbought territory. 1st chart however shows that rally comes with increasing volume. 

A few important notes on primary chart: I have used Bollinger bands and I have included a resistance line (green) and a gap line (light red). You will find that prior to the correction, the candlesticks have jumped briefly out of the upper band!

If I translate into layman's terms, it means the rally has stretched too much and a correction back to the mean was imminent. However, it also means that perhaps that's not the end of this round of rally, since there's increasing market participation. I also noticed insiders buying activities during this period of time, which is also positive.

We just need to be careful about the correction, as illustrated by the light red line. It is actually the target price to fill the gap left behind by the earlier surge in price. The question is when will this gap being filled.

Next charts I am going to show might give a hint of the next move for the company shares price.

The above are weekly charts. The first one shown the current time period. The latter is a historical time period, both using Bollinger bands. Bollinger bands tell us about moving averages. Besides telling us about possible overbought or oversold, it also gives information about what is possibly going to happen. You will notice from the 2nd chart that the Bollinger bands move from narrow bands width to a lot wider bandwidth. The first chart (current weekly timeframe) actually shows the opposite bandwidth movement. 

What we know in the real world is that it is normal for a stock to go from high volatility to low volatility and vice versa. Bollinger bands is a measure of this volatility. For a stock that has low volatility for some time as illustrated by the first chart, it is only a matter of time that increased volatility takes place. When there's increased volatility, it means a breakout would have taken place. The question is then which way will the breakout take! 

Other indicators such as RSI are suggested as hints to inform this. From the first chart, we can observe RSI is increasingly positive while the primary chart is in an overall downward trend and stabilising. This positive divergence indicates that EOS is likely to breakout on the upside! Just be cautious that it is weekly trend I am talking about and not something that will happen immediately.

Lastly, to share some latest developments in the industry.

It is actually very interesting developments in the space here. We know that Australia is not as big a spender in defense as US or China. However, as observed in the above articles, the Albo government is seriously committed to defense. CEA operates in similar space as EOS (Radar system) and is in fact a competitor. The question to ask if nationalisation of CEA means that more jobs will go to CEA rather than EOS. I would think not, since both radar systems works differently. For long range missiles tracking and targeting, both systems are important. I would like to think that this means an increasing emphasis on this space rather than a likely future monopoly. Furthermore, EOS is not just about radar system. The takeover price of $500M is also attractive considering the current low market capitalization of EOS.

So, overall I am positive in EOS as a company. The business has stabilized. Recruitment of staffs have started, meaning more jobs are coming in! However, the current price is still not attractive enough for an entry. We will need to revisit TA again in the near future for a better entry price, taking the light red gap line above as a reminder of how low this share price could possibly go!

@Vjy  @GoodLife99  @Bons  @Universe宇宙  @koolgal @TigerStars