BSQuare Stock Price Up 207% – Time to Buy BSQR stock?

The price of BSQuare Corporation stock surged more than 200% yesterday to end the day at $8.04 despite the absence of a material event that would justify such a pronounced surge while trading volumes were 600 times higher than the daily average with over 240 million shares exchanging hands during the session.

There was almost no mention of the stock within the Reddit messaging board WallStreetBets based on data compiled by meme-stock tracker Swaggy Stocks while BSQR stock’s short float stands at 6.4% – which makes a short-squeeze play highly unlikely.

Considering that the stock finished the day near the session’s highs, it would be convenient to take a look at the firm’s fundamentals to determine if there might be some justification for this elevated valuation or if something else is going on that is causing the price of the stock to surge.

BSquare Stock – technical analysis

Based on some chatter about the stock seen in Twitter and other channels, it seems that a coordinated group of traders might be behind this latest pump in what seems to be a low-quality stock.

With only around 400,000 shares of BSQR traded per day for an estimated value of $1 million, it would not be too hard for a group of investors to push the value of the issue higher by buying in and out-of-the-money options.

According to data from MarketChameleon, a total of 80,500 BSQR options were bought yesterday and 59% of them were calls.

It seems that retail traders have been engaging in more advanced strategies aimed to pump the price of a stock by forcing brokers to hedge their exposure to former OTM that become ITM options amid a sudden increase in the price of the underlying security.

This strategy is particularly effective for low-volume stocks such as BSQR as the increased demand can result in serious liquidity shortages that turn into price gaps such as the one reflected in BSQR’s chart.

The outlook for this stock is uncertain as yesterday’s surge has not been prompted by a material event that could have an effect on the business’ future performance.

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BSquare Stock – fundamental analysis

BSquare is a company that distributes and markets IoT technology based on Microsoft’s Windows IoT and Windows mobile platforms. The firm is based in Seattle and currently employs around 70 people while its market cap currently stands at $35 million following yesterday’s sharp uptick in the stock price.

The company’s revenues have been going down steadily since 2015 when they appear to have peaked at $106.6 million while they landed at $47.1 million last year amid a sustained decline in the demand for Windows-based IoT solutions.

Moreover, gross profit margins have also been declining during the same period, moving from 19.2% back in 2015 to 16.4% as of last year for a 280 basis points retreat while the company reported a net loss of $1.9 million last year.

BSquare has been consistently losing money in the past five years while it is currently restructuring its organizational structure to reduce operating expenses. According to the management’s plans, BSQuare expects to return to net profitability by the end of 2021 even though the odds of that happening are not particularly high amid the sustained deterioration of the company’s top-line results.

The firm’s long-term debt ended the first quarter of 2021 at $1.6 million while BSquare had $10 million in cash and equivalents. From the perspective of solvency and liquidity, it seems that there is no imminent bankruptcy risk for BSquare amid the absence of significant financial commitments while the firm’s liquidity seems high enough to sustain the company’s money-losing operations.

Excluding yesterday’s uptick, the stock was up 72% for the year already since BSQR stock hasn’t fully shed the gains it saw during the February retail frenzy while it is fairly possible that a group of investors may have coordinated efforts to pump the stock yesterday.

At a market capitalization of $35.1 million, BSQR is being valued at 0.87 times its sales from last year. However, a third of that valuation is supported by the company’s cash position. If we deduct those $10 million in cash and equivalents from the market cap, the price-to-sales ratio assigned to BSQR drops to 0.5.

Although this valuation multiple seems fairly conservative, it is important to note that the value of a company such as BSquare Corporation is not particularly high as its sales come from the commercialization of a product whose addressable market is in decline while the firm owns no valuable intangible assets such as patents or technologies that might justify the current valuation.

Meanwhile, BSQR stock is down almost 30% this morning, possibly as both insiders and those who bought the shares yesterday morning might have decided to take some profits off the table.

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