Has Pandora's jewelry turned dull? — #SaxoStrats
It's been a rough period since May last year for Pandora, the world's largest jewelry-maker and 11th most valued company in the Textiles Apparel & Luxury segment, with the share price down 29% as investors begin to question the growth potential. In recent sessions the stock has been under pressure due to downgrades among sell-side firms.
It also scores above average on yield meaning that Pandora is returning more capital to shareholders than peers in the same industry. Even more importantly Pandora scores very high (2.66) on the quality factor as the company's business model makes it the company with the highest return on invested capital in its industry.
But a factor that has catapulted the stock high on the conviction list is the reversal factor (3.06). This is because the stock price has fallen a lot the past month compared to the industry. Historically this is followed by a mean reversion as the price behaviour among its peers suggests investors are overreacting on Pandora.
But the big growth driver will be Asia-Pacific. Any disappointment in this segment could cause a significant re-pricing of the company's future outlook.
Management and risk description
Pandora's shares are very volatile so we are setting a conservative stop price at DKK 660. The company's reaffirmation of its 2017 outlook is very encouraging but still want to keep risk low on this trade and also to have a meaning risk-reward ratio.
Pandora weekly share price
Entry: we are entering the stock with a buy market order at current levels DKK 710-725.
Stop: the stop is set at DDK 660 which is just below the closing price April 18. Given the stock is so volatile we are being conservative on this recommendation.
Target: we are setting the short-term target to DKK 850.
Time horizon: Given the tight stop and target price we expect the time horizon on this trade to be medium unless the company disappoints materially during 2017.
— Edited by Martin O'Rourke
Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here