Newbridge Networks was a Canadian tech stock that designed and manufactured products used to manage communication networks on a worldwide basis.
The firm managed digital links that transported voice, facsimile, data and video among information processing equipment. Products were sold in 70 countries with 72% of sales in North and South America.
Newbridge was incorporated in 1986 and had its initial public offering in 1989. It operated on a fiscal year that ended in April.
At its first buy point, emerging out of a 22-week base, Newbridge earned 28 cents a share in the year ended April 1992. Estimates for the following year were 80 cents, marking an increase of 186%.
The price-to-earnings ratio was 41, but we never look at that and say, "Oh, that's too high we can't buy that." In the market, a stock sells for what it's worth at the time. The law of supply and demand continues to do its work. Also at the buy point, five of the better performing growth funds had recently acquired positions in the stock.
Tech Stock's Earnings Up 350%
Newbridge spent 4.7% of sales on research and development and had a low beta of 1.16. Overall sales were at $196 million with the last quarter's revenue up 36%. The last quarter's earnings for the tech stock were up 350% and the Relative Strength Rating was 95 at the breakout point.
The week after breakout, the up/down volume had jumped from 1.3 to 3.0. That reflects the huge volume of the breakout week, which also tells you it wasn't your cousin Josephine doing the buying. The stock also broke out of a giant 33-month-long cup-with-handle base. That began in the December quarter of 1989, not shown on this weekly chart.
So it pays to check out a long-term monthly chart as well as your basic weekly and/or daily chart. You're in the business of checking all the key facts — no guessing or hot tips.
Editor's Note: Newbridge was acquired by Alcatel in 2000, which eventually merged with Nokia in 2016.
This column originally ran in Investor's Business Daily as part of a 2012-14 series on America's greatest stock opportunities written by IBD's founder, the late William J. O'Neil. See more stories in this series.
