As part of weekly research this week at Fairmont Equities, we analysed Greencross. Here I will share with you a summary of our findings.
We take a POSITIVE view on GXL, given that the recent weakness in the share price has led to a more acceptable 1-year forward P/E multiple of ~19x , which we consider reasonable for a quality growth stock such as GXL particularly in comparison to the PE multiples that GXL has recently traded on.
Key catalysts for a recovery in the share price from recent weakness include:
1. Delivery on the 36 cents per share EPS target (EPS in 1H15 was 17.2c on an underlying basis). Given the expected increase in contribution from the City Farmers acquisition in 2H15, the continuation of strong organic growth in 2H15, GXL appears well on track to achieve this target.
2. GXL increasing its market share towards its 20% target, and as we have highlighted, there is a clear and achievable strategy in place to reach this target.
After peaking in August last year, GXL pulled back towards the last low around $7.50 before bouncing again. It seems to be coming back fairly heavily again in the last few weeks. On a daily chart (weekly chart is shown below), it is looking oversold, but the severity of the recent drop suggests it may have a bit more to go on the downside. We could see it come back and find support near $7 which would be a much better entry point. A breach of that level could see it dip under $6 which is where stops can be placed for those getting in nearer to $7.