Mind Technology Inc (NASDAQ: MIND) stock is up 36% premarket on news of an agreement with the US Navy. The contract is to work with the Panama City-based research operation of USN on antimine warfare. The aim is to upgrade the Navy’s sonar based capabilities for detecting those mines.
The agreement is known as a “CRADA”, a cooperative research and development agreement. These often do lead to the manufacturer gaining much more insight into what the military desires as well as more information about the specific problems being faced. From there the development of new technologies is eased.
Mind was looking for some good news it has to be said. While the company has a $10 million backlog of production to manufacture and deliver the recent results were less than wholly pleasing. The Mind stock price has been down since the results announcement last week where there was an earnings miss of 1 cent a share. Not that 1 cent is an important number but stock valuations are all about expectations. So, come in under what the market is expecting and the price will decline.
The announcement of the Crada is thus helpful – against that generally falling price it has boosted the Mind stock price substantially. However, there’s likely to be continued volatility. For the stock price was up 60% immediately after the announcement at the close last night.
Don’t forget, the calculation of the “premarket” price in the morning is actually of the price change from the “close” at 4.30 pm the night before. So, if a company makes an announcement at the close of trading hours our premarket price the next day is the combination of both early morning trade and also that after the bell the day before.
This puts a slightly different gloss on the stock price for Mind Technologies this morning. It’s not actually up today before the market opens, it’s down from the overnight highs. The announcement boosted it considerably and it’s now falling back from that first impression.
The future for the Mind Technologies stock price will likely depend upon two interacting factors. The first is that more general view of the company’s prospects. An earnings miss is an earnings miss, whatever that backlog of deliveries to be made. Expectations of future success are, of course, downgraded by the amount – and possibly more – Mind didn’t meet pre-existing expectations.
The second is this announcement of the Crada with USN. These are undoubtedly good things for a military supplier. They do provide great insight into what the military is likely to want in the future. They also give a ringside seat to the development and acquisition process. But really how exciting is it? There was that grand reaction last night which is now falling away a little.
It’s the balance of those expectations which are likely to drive the price going forward. It’s possible to expect volatility, thus trading opportunities, as the general market calculations of the outcome there change. Being on the right side of those changing assumptions is what produces the trading positions and strategy.
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