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eResearch Share Grab in Progress, Hits 52-Week High

This morning was one of those at your desk near-coffee spill moments when looking up to see shares of eResearch Technology Inc. (ERES) unexpectedly higher. The stock gapped up over $16 right at the opening bell before finishing the day at a 52-week closing high of $16.10, up $.88, or 5.78%, on extremely heavy volume of 1.9 million shares, or about four times the average daily volume over the past three months of 567,965. It’s the fourth day since the cardiac services provider reported earnings on May 5 that the stock has hit a new 52-week high. One explanation for today’s move could have been an analyst initiating coverage which would be extremely plausible given that only three analysts were on the recent conference call and have ratings on eResearch (FBR, Leerink Swann and Sidoti & Company) and a major brokerage firm starting coverage would create some major visibility for this under the radar stock. Yet that just wasn’t the case, and with the exception of the notion of the continuation of a post-earnings rally, there really was no other obvious catalyst or news item out today that would justify a move of this magnitude on what was the third heaviest trading session for eResearch year to date. So perhaps the explanation of the recent upswing is elementary; simply that demand outweighs supply. After a great quarter in which management boosted the company’s revenue and earnings outlook, the stock still trades at a forward PE of 24.5 and with just 50.6 million shares outstanding, there is going to be a rush to get a share in the future success of the company which will undoubtedly positively impact the share price. According to Edgar Online, there is a good institutional backing to the stock, with 42.63 million shares held by institutions and funds, quite a substantial portion of the shares outstanding. And when you take into account that the short interest is 3.3 million shares, less than half the 6.1 million shares short this time last year, yet still sizable given the average daily volume and the fact that the position would take about 10 days to cover, it only adds to the effect of heightened demand on a stock with a tiny float and a short supply of shares.

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