Sunday, August 7, 2016

Stock Chart Pattern - Great Eastern Shipping (an update)

These were introductory comments in the previous post on Great Eastern Shipping 7 years ago: "Fundamentally strong, with very good profit margins, strong cash flows from operations, low P/E ratio, regular dividends - all the hallmarks of a stock that should adorn any long-term portfolio."

The shipping sector has been facing a pressure on freight rates for quite some time due to an excess supply of vessels - compounded by a slowdown in the Chinese economy and low oil prices that have affected offshore drilling business.

In spite of such headwinds, India's largest private sector shipping company has produced stellar results. Consolidated net profit of Rs 1039 Crores with NPM of 25.5%; diluted EPS of 68.8 giving a P/E ratio of 5.3; net cash flow from operations of a massive Rs 2047 Crores; debt/equity ratio at a manageable 0.55; dividend yield of 3.7% on CMP.

Yet, the chart below shows the stock price has been in a 2 years long down trend (marked by blue down trend line). Is this a value investing opportunity, or what? 

The stock price had touched a 2 years high of 460 on Sep 15 '14 only to drop into a long correction-cum-consolidation phase. After forming a 'rounding bottom' reversal pattern, the stock rose to touch a high of 399 on Aug 13 '15 but retreated after facing strong resistance from the blue down trend line.

Continuing with the consolidation within a 'rounding bottom' pattern, the stock price breached the down trend line and touched a high of 420 on Nov 10 '15, but formed a 'reversal day' pattern (higher high, lower close) that triggered a sharp correction below its three EMAs into bear territory.

The stock price formed a small 'double bottom' reversal pattern at 275 on Mar 2 '16 and rallied past its 20 day and 50 day EMAs, but failed to overcome strong resistance from its 200 day EMA. Another correction-cum-consolidation ensued.

After forming another 'rounding bottom' reversal pattern (clearly visible on the 20 day and 50 day EMAs), the stock price rallied past its 200 day EMA into bull territory and has breached the blue down trend line once again.

Daily technical indicators are looking overbought. That means the upside may be limited in the near term. Those who understand the nitty-gritty of the shipping business may consider gradual accumulation.

1 comment:

Subhankar said...

GE Shipping, SCI on asset-buying spree