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CombiMatrix Poised to Double -- or More

Tickers in this article: CBMX

 DELAFIELD, Wis. (Stockpickr) -- When I scan the small-cap biotech and health care sectors, I am always looking for a stock that has two major things going for it: a strong fundamental story and a bullish technical chart setup. Those two elements can be a powerful combination, since they can quickly bring together fundamental investors and technical traders who can push a stock substantially higher when they work in concert.

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I believe I have discovered the next small-cap health care stock that has a perfect storm of those two key elements. This potentially perfect storm is still in the early stages, so this stock could very well be offering market players a very attractive entry point.

The company I see big opportunity in here is CombiMatrix , which is a molecular diagnostics player that operates primarily in the field of genetic analysts and molecular diagnostics. This company specializes in cytogenetic testing for prenatal diagnosis, miscarriage analysis and pediatric development disorders. The company's microarray testing addresses various common hematological malignancies, primarily chronic lymphocytic leukemia. CombiMatrix's customers are commercial insurance companies, health care institutions, government payers and individuals.

During the firm's latest earnings report, CombiMatrix said revenue for the fourth quarter and full year increased to $1.76 million and $6.37 million, respectively, or 18% and 19% growth from the comparable periods in 2012. Revenue for its core prenatal microarray testing markets grew by 22% from the third quarter of 2013 and 112% year over year. Sales volumes for prenatal microarray testing increased 74% and 126% for the fourth quarter and for the comparable period in 2012.

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CombiMatrix CEO Mark McDonough said on the company's most recent conference call that he believes there is no reason why the company can't keep this kind of growth going in 2014 and beyond. McDonough pointed out that the company has been expanding its sales force and plans to hire as many as 15 new members in the near future. You can really understand why he's excited since the estimated market for their products is in excess of $350 million annually.

I believe that CombiMatrix could double or much more from its current price level of around $3.25 per share for a variety of reasons. First, CBMX is an attractive takeover target, since it has accelerated growth and a market cap of just $15 million. That market cap does not reflect the opportunity for CBMX to growth substantially as it takes share and attacks the $350 million market for its products. Second, this stock has favorable technical setup that is rapidly developing as I write this. I will touch more on that shortly. Third, this company has all the reason in the world to announce more new partnerships that will expand its markets and increase cash flow. And finally, CBMX, for whatever crazy reason, has a ton of short-sellers that are currently betting against this company. Those shorts, if wrong, have the potential to be the fuel to this rocket ship if the stock can finally sustain some gains and break out above some key overhead resistance levels.

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The current short interest as a percentage of the float for CombiMatrix is ridiculously large at 24.6%. That means that out of the 4.56 million shares in the tradable float, 1.12 million shares are currently sold short by the bears. The shorts have also been increasing their bets from the last reporting period by 14.5%, or by about 140,000 shares. This is a low-float stock with a monster short interest, and it's a company with an intriguing fundamental story -- a powerful combination that can easily send shares of CBMX exploding higher on any good news or large new partnership announcements.