JBL (Long) - an outperforming value-play

16 feb

Fundamentals

• The market is obviously overbought (still expecting a pullback), which could potentially give space to the stock to consolidate and form a cup-and-handle formation
  
• Fundamentally, the company is sound - it has seen a decrease in demand, reflected in the decrease of revenue. However, efficiency gains meant that profit has gone up regardless, hence the price rise.
  
• The earning are currently pricing another fall in revenue (yet, the price is still rising), hence a potential beat could serve as a nice boost to the share price.
  
• Why am I interested in a firm with declining revenue? Because it has a lot of things going - the firm is expanding into various sectors (including healthcare, semiconductor equipment, and AI-driven data centers), which gives it a diversified customer base + it has signed a massive 2.2bn agreement with BYD , giving it an entry into the EV market
  
• Cheap - P/E ratio of 23, despite the rise in price (based on Willliam O'Neill - the biggest winners of his careers had a starting P/E between 20-40)
  
• Only problem is a pretty high level of debt
  

Technicals

• The usual - accumulated base, currently on the verge of breaking the upper resistance
  
• Another way to look at it is a broken bullish pennant
• The most likely scenario I see is a consolidation along with the market and then breaking either close to the earnings or on earnings
  
• The bottom indicator shows a recent outperformance compared to S&P500
  
• Stochastics has been in the upper range for a while - again, showing that it will probably pull back for a little while
  

Trade

• There are plenty way to go about it - I will likely choose to wait until the stock price consolidates around the resistance and wait for a breakout
• If the breakout happens now, I would once again advise to enter the trade, but with the caveat of giving the trade more space for a potential pullback back to the support
  
• Of course, if the stock starts receding from here, the trade is off; same goes for a failed break out
  
• Main caveat is the earnings - if the stock disappoints, then once again, the trade wouldn't be advisable
  
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