Down -15% in 4 Weeks, Here's Why You Should You Buy the Dip in Informatica Inc. (INFA)

Informatica Inc. (INFA) has been beaten down lately with too much selling pressure. While the stock has lost 15% over the past four weeks, there is light at the end of the tunnel as it is now in oversold territory and Wall Street analysts expect the company to report better earnings than they predicted earlier.

Guide to Identifying Oversold Stocks

We use Relative Strength Index (RSI), one of the most commonly used technical indicators, for spotting whether a stock is oversold. This is a momentum oscillator that measures the speed and change of price movements.

RSI oscillates between zero and 100. Usually, a stock is considered oversold when its RSI reading falls below 30.

Technically, every stock oscillates between being overbought and oversold irrespective of the quality of their fundamentals. And the beauty of RSI is that it helps you quickly and easily check if a stock's price is reaching a point of reversal.

So, by this measure, if a stock has gotten too far below its fair value just because of unwarranted selling pressure, investors may start looking for entry opportunities in the stock for benefitting from the inevitable rebound.

However, like every investing tool, RSI has its limitations, and should not be used alone for making an investment decision.

Why INFA Could Bounce Back Before Long

The heavy selling of INFA shares appears to be in the process of exhausting itself, as indicated by its RSI reading of 27.85. So, the trend for the stock could reverse soon for reaching the old equilibrium of supply and demand.

The RSI value is not the only factor that indicates a potential turnaround for the stock in the near term. On the fundamental side, there has been strong agreement among the sell-side analysts covering the stock in raising earnings estimates for the current year. Over the last 30 days, the consensus EPS estimate for INFA has increased 0.6%. And an upward trend in earnings estimate revisions usually translates into price appreciation in the near term.

Moreover, INFA currently has a Zacks Rank #2 (Buy), which means it is in the top 20% of more than the 4,000 stocks that we rank based on trends in earnings estimate revisions and EPS surprises. This is a more conclusive indication of the stock's potential turnaround in the near term. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

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Informatica Inc. (INFA) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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