For the first time in a very very long time, Puregold released lower than expected earnings. As its net income hit 1.7 Billion Pesos for the 1st half of 2014. Compared to other supermarkets this may be huge earnings already but for Puregold expectations are pegged a bit higher. Because Puregold at the same time last year earned 6.6% more at 1.8 Billion Pesos.
As what I always tell my clients and seminar attendees, investors are always driven by earnings. They are motivated to buy when earnings are good and are motivated to sell if earnings are not as good as expected. This is the case for Puregold as soon as the news broke out of the lower than expected earnings the stock price of PGOLD tumbled from nearly 42 Pesos per share to 36 Pesos per share in just two trading days, giving the stocks a 14.1% loss in just two days.
Is the recent loss substantial to warrant this drop? By the price action in the past few days the market is already dictating that it does not want any part of PGOLD at this moment.
Looking at it from a P/E ratio perspective, PGOLD is relatively expensive at 25.4x. But aside from being expensive what has been overlooked was the fact that PGOLD was already bearish since July 14, 2014 when it dropped the 200 day moving average and crossed over into bear category. The event alone should have been a trigger to avoid PGOLD or sell the stock down.
Currently, it now has dropped all short, mid and long term support levels. Looking at the chart below, PGOLD may drop to 34 Pesos per share if it does not push upward and stay at 36.6 Pesos per share.
The stock is currently oversold already due to the massive sell off the past few days. But the question is has the selling stopped? If you have cash when do you come in? If you bight at 48 Pesos per share should you panic? If you bought at 32 pesos per share is it the time to lock in what little gain remains? As no one has a crystal ball as to how low PGOLD can go or the exact date when it will rebound but this is what we know so far:
1. The stock is bearish
2. Negative sentiment surronds the stock
3. A stock with a lot of sellers may take a longer time for it to go up than usual
4. If the stock has a chance of going back up it should stay above 36.6 Pesos per share
5. The strongest resitance where a lot of people will be selling is at 42 pesos per share
6. If the stock continues to drop the next good place to consider to buy the stock is at 34
If you are in cash or have positions in Puregold I do hope this article helps. As what I desire from you is that you learn to create your own startegy and plan in trading that you be profitable not just now but you be profitable repeatedly over the long term. God bless you and may you have a great weekend ahead.
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*Charts by chartnexus and bloomberg