Magic Software Enterprises Ltd

Magic Software Enterprises Ltd. (NASDAQ: MGIC) is a provider of application development, business process integration platforms, vertical software solutions and related professional services. The Company is a vendor of information technology (IT) outsourcing services. Its software technology is used by customers to develop, deploy and integrate on premise, mobile and cloud-based business. It operates through two segments: software solutions and IT professional services.

Recent Financial and Business Updates: 

• Financial Highlights for the Third Quarter Ended September 30, 2023
  • Revenue Decline and Unexpected Demand Impact: In Q3 2023, Magic Software reported a 10.1% decrease in revenues to USD 129.5 million, primarily affected by an unforeseen decline in demand from key U.S.-based clients. This sudden reduction, resulting in a loss of nearly 500 U.S. specialists and a negative impact of approximately USD 16 million on Q3 revenues, led to the quarter's challenges.
  • Operating Income and Non-GAAP Performance: Operating income for Q3 2023 declined by 19.2% to USD 13.3 million, while non-GAAP operating income decreased by 8.8% to USD 17.2 million. The decrease in non-GAAP net income, at 23.9% to USD 10.4 million, was primarily attributed to reduced operating profit and increased interest expenses due to higher bank interest rates and overall financial debt.
  • Net Income Decrease: Net income attributable to Magic Software's shareholders saw a significant decline of 38.6% to USD 7.1 million in Q3 2023, reflecting challenges in the operating environment. Non-GAAP net income attributable to Magic Software's shareholders also decreased by 23.9% to USD 10.4 million.
    

• Financial Highlights for the First Nine-Months Period Ended September 30, 2023
  • Revenue Challenges and Operating Performance: Revenues for the first nine months of 2023 dropped by 2.4% to USD 409.5 million, impacted by the same unexpected demand decline from U.S. clients seen in Q3. Operating income decreased by 7.3% to USD 44.1 million, while non-GAAP operating income declined by 3.0% to USD 54.1 million, affected by operating profit reduction and increased interest expenses.
  • Net Income Decline: Net income attributable to Magic Software's shareholders for the first nine months decreased by 7.6% to USD 28.5 million, reflecting the challenges faced during the period. Non-GAAP net income attributable to Magic Software's shareholders also decreased by 4.1% to USD 36.8 million.
  • Cash Flow and Liquidity: Despite the operational challenges, the company reported robust cash flow from operating activities for the first nine months of 2023, amounting to USD 65.5 million, compared to USD 40.3 million in the same period last year. As of September 30, 2023, Magic Software maintained a solid financial position, with cash and cash equivalents totaling USD 107.0 million.

Technical Observation (on the daily chart)

The Relative Strength Index (RSI), calculated over a 14-day span, stands at 52.59, signifying the likelihood of either some consolidation or a continuation of upward momentum. Adding to this, the stock presently finds itself positioned between the 21-day and 50-day Simple Moving Averages (SMA), which could function as a dynamic short-term support and resistance levels respectively. The price has broken above an important resistance of USD 10.00, with expectations of a retest before the continuation of upward trend.

As per the above-mentioned price action, recent key business and financial updates, momentum in the stock over the last month, and technical indicators analysis, a ‘Hold’ rating has been given to Magic Software Enterprises Ltd. (NASDAQ: MGIC) at the current market price of USD 10.66, as of February 22, 2024, at 08:25 am PST. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing. 

How to Read the Charts?

The yellow colour line reflects the 21-period simple moving average (SMA) while the blue line indicates the 50- period simple moving average (SMA). SMA helps to identify existing price trends. If the prices are trading above the 21-period and 50-period moving average, then it shows prices are currently trading in a bullish trend.

The orange colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

The red and green colour bars in the chart’s lower segment show the volume of the stock. The volume is the number of shares that changed hands during a given day. Stocks with high volumes are more liquid than stocks with lesser volume as liquidity in stocks helps with easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is February 22, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: The report publishing date is as per the Pacific Time Zone.