Virgin Airlines: Up or down?Virgin Airlines was a growth stock turned sour. Even with fuel hedging and increase in revenue the market still does not approve VA and hence cause it's decline since it's high at december.
Technical: Based on the chart, there are 2 anomalies that one should take note when trading this.
1) Between $30(green line) and $26.42 (blue horizontal line), the price has found support. This is a crucial zone and it is absolutely crucial that you do not enter the trade unless you are very very sure of the fundamentals else you will be catching a falling knife. This is known as the accumulation/distribution phase where thousands of shares are being exchanged with no prior direction. It is also where liquidity is highest and many "big boys" are either unloading or loading up stock. Do check insider transactions for more info
2) The descending triangle is marked by the same support level and a decreasing resistance. Based on bulkowski's formula that sets price target based on probability. I have marked where the predicted price would go.
Fundamentals: Simplywall.st did DCF calculations and found it's fair value at around $14. This is close to Bulkowski's formula's prediction. VA is overvalued based on cash flow studies. However based on traditional ratio metrics VA is undervalued. P/E stands at 6.52. PEG stands at 0.26. P/S stands at 0.81 and EV/EBITDA stands at 4.67. They do have quite a bit of debt but their cash flow could easily pay it off.
Story: Investors believe oil and the Zika virus would affect sales of this stock heavily and hence they are bearish about it.
Would I go long? Yes! Once the price exited the $30 zone.
Would I go Short? Also yes!. Only of the price drops below $26.42!
Would I do anything now? No! I'm not catching a falling knife. Market is ??? about this stock. So trade after breakouts.
Undervalued
Contrarian investing vs catching a falling knifeI am not the author of the seekingalpha article even the though the title looks similar. I just find it cool and it rings.
For followers of Stan Weinstein chart analysis (do google this up, his technical analysis methods are really easy to use), you would have noticed that KORS has just exited stage 1 and is now at the possible start of stage 2. The high volume confirms this. Also, the crossover of the 30 SMA confirms this as well.
Fundamentally speaking, KORS has a low PS ratio of 2.05 (at time of writing) and based on Ken FIsher investment strategy, the PS ratio below 3 is fairly attractive. It also has low debts, which is a good thing as the Fed starts to increase interest rates.
DCF puts KORS at a valuation of $71. Interestingly this coincides with the 50% Fib retracement of this chart. I have bought 25 shares (I am a poor college student) at $50.06 and will prepare to sell at 50% Fib retracement.
VA short play on weeklyvolatility in oil and the recent sell off in oil is causing airlines stocks to be volatile as well.
VA is an undervalued stocks by many metrics, however technical analysis showed the lack of demand from this stock.
Combining the rising wedge, bearish divergence, and market volatility, I am expecting a decline over the next few weeks.
However, if it breaks it's a different story. Does anybody want me to calculate a price target?
