Pearson plc : Overbought situation
Entry price | Target | Stop-loss | Potential |
---|
GBX 1,335 |
GBX 0 |
GBX 1,372 |
+100% |
---|
The group released a half-year results slightly better than estimates, with revenue up +6.7% to GBP 2.76 million (consensus 2.69 million) and EPS decreasing by -36.5% at GBP 0.099 (consensus 0.098). This good news allowed the stock to open a bullish gap above the trend line to lead it close to the GBp 1330 area. However, this uptrend should not continue because of bad fundamentals of the company.
Firstly, we note the high valuation of the company. The P/E ratio for the current year is at 23x and expected at 18.8x for next year. With a valuation ratio of 1.99x, the group appears overvalued compared to its business activity. Regarding the financial situation, leverage is at 1.07x. Debts are estimated at GBP 1,067 million for the current year. Finally, we note that analysts have revised downward their earnings per share estimates for the coming years and that is an indicative criteria of a worsening business climate.
Technically, the security could run out of steam because of the overbought situation. Indeed, the stock is moving in an upward trend in the short term but it could know a halt. In this context, the downward movement could improve and it should expect a return to GBp 1250.
Due to the technical configuration and a bad fundamental situation that does not justify the current valuation of the group, investors can open a short position at the current price. The price target is set at GBp 1250 and a stop loss will be placed above the week's high (GBp 1347).
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