Woolworths – Undervaluation Makes For a Smart Buy

Woolworths – Undervaluation Makes For a Smart Buy

Buy Low Sell High

With an intent of reducing the variance caused by short-term volatility in annual earnings, I deploy WOW’s best fit version of its past five-year average annual earnings performance. Looking at WOW’s EPS decline of -78.65% over the past year compared to the long-term trend of -1.98% drop, we found that WOW’s bottom-line performance has deteriorated further. However, we also want to check how the company stacks up against the industry’s performance — whether there’s a broader downturn or if WOW is facing some company-specific headwinds.

For shareholders, while WOW’s earnings decline worsening lately has been concerning, the Food and Staples Retailing industry’s earnings decline over the past year could indicate a broader industry downturn, and may serve as a consolation for shareholders.. However, this is not the case here as WOW’s EPS decline of -78.65% was even bigger than the industry’s earning-contraction of -1.4%, raising questions over its long-term profitability.

Woolworths doesn’t fare well in terms of the continuing track record. However, it’s important to keep in mind whether this impediment has already been priced into the stock’s valuation. Woolworths could still make for a good investment if it is considered to be undervalued based on its intrinsic valuation.

Technical Analysis

Overall, the bias in prices is: Upwards.

Short term: Prices are stalling.

Intermediate term: Prices are ranging.

The projected upper bound is: 27.08.

The projected lower bound is: 25.62.

The projected closing price is: 26.35.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 8 white candles and 2 black candles for a net of 6 white candles. During the past 50 bars, there have been 35 white candles and 15 black candles for a net of 20 white candles.

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 4 rising windows in the last 50 candles–this makes the current rising window even more bullish.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 47.3333. This is not an overbought or oversold reading. The last signal was a sell 4 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 58.05. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 102 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 67. This is not a topping or bottoming area. The last signal was a sell 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 18 period(s) ago.

Rex Takasugi – TD Profile

WOOLWORTHS FPO closed up 0.110 at 26.360. Volume was 37% below average (neutral) and Bollinger Bands were 8% wider than normal.

Open     High     Low       Close     Volume
26.300  26.415  26.300  26.360  1,791,488

Technical Outlook
Short Term:               Neutral
Intermediate Term: Bullish
Long Term:                Bullish

Moving Averages: 10-period    50-period    200-period
Close:                       26.24           25.94            25.18
Volatility:                14                  18                 19
Volume:                   2,176,467    2,934,828   3,110,359

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

WOOLWORTHS FPO gapped up today (bullish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
WOOLWORTHS FPO is currently 4.7% above its 200-period moving average and is in an upward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of WOW.AX at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on WOW.AX and have had this outlook for the last 11 periods.

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Ivy Heffernan

Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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