IBD 50 Stocks To Buy And Watch: This Medical Device Maker Is Building A Cup

Shockwave Medical is forming a cup base with a buy point of 223.25 on the strength of a rising relative strength line and support from its 50-day and 200-day moving averages. Shockwave stock is an IBD 50 Stock to Watch.

On the MarketSmith weekly chart, this medical device maker's stock has the look of a gigantic double bottom. But if we focus on the cup that is forming in the daily chart, the base of the cup is 51% deep. Ideally, a cup should be no deeper than 33%, but given that the cup was formed during a market correction we can overlook that flaw. It also appears to have a handle forming with a potential entry at 214.54.

SWAV completed a cup-with-handle pattern in April with a buy point of 223.25, but the base formation failed and it quickly plunged to below a sell zone. Since then it has made a comeback on the strength of its Q1 earnings, which beat FactSet analysts' on both earnings and sales. Shockwave posted a profit of 39 cents a share vs. a net loss of 68 cents in the year-ago quarter.

A rally in health care stocks over the past month as investors feared a recession has also buoyed the stock. The S&P Health Care Select ETF has gained 4.5% over the past month through Thursday.

Shockwave Stock Gains On Expected Earnings

Analysts estimate SWAV will earn 41 cents a share on sales of $107.5 million in the second quarter. The company is scheduled to announce Q2 earnings on Aug. 8.

Shockwave is currently ranked No. 2 in IBD's Medical Systems/Equipment group, behind radiation device maker Sensus Healthcare, according to IBD Stock Checkup. The group is ranked No. 39 among 197 industry groups.

Shockwave makes products that are designed to transform the way calcified cardiovascular diseases are treated. Shockwave makes technology intended to increase blood flow by using sound waves to fracture and weaken layers of calcification in arteries.

SWAV has an IBD Composite Rating of 96 but a low 76 EPS Rating, which tracks quarterly and annual earnings-per-share growth. The company first turned a per-share profit last year.

Its RS Rating, however, has climbed steadily since early May to 94 currently.

Follow Michael Molinski on Twitter @IMmolinski