Thanks for your column. I have been following Enterprise for awhile – owned it, sold it on the way down and am wondering about the underlying business model and strength of the company in the longer term. Appreciate your thoughts.
Thanks for the assignment and I’m glad you appreciate the analysis. This will be the second time that I investigate the case for Enterprise Group Inc. (E TSX). The first was on June 14, 2013 when the shares were trading for $0.68. Joyce wanted my thoughts and after conducting research on her behalf it was advised not to shoot the running horse.
The stock had started a generous move higher in October of 2011 as it caught a lift off of $0.10. A golden cross surfaced in March of 2012 indicating buyers were showing interest in the shares. A golden cross signals that investors can expect a continuation of an advance. As the shares climbed they enjoyed support along the uptrend line and the 50-day moving average. Further there didn’t appear to be any serious resistance until the $0.80 range.
In retrospect that was the correct conclusion. E ran to a 52-week high of $1.19 by late February of 2014. But that was the end of the upside. The stock began a steady decline to its 52-week low of $0.29 by December of 2014.
Another inspection of the charts will help inform my thoughts.
The three- year chart outlines the decline that started in late February 2014 and gained momentum to the present. As depicted the MACD and the RSI both generated sell signals near the top. If the drop from $1.19 was the first shot across the bow the death cross that formed in July of of 2014, when the stock was trading near $0.90, provided a warning that investors could expect selling to increase. A lot of the pressure would have come in sympathy with the drop in the price of crude oil which started in June of 2014.
The six-month chart highlights the oversold situation indicated by the RSI that existed through the middle of December 2014. The stock saw some buying at the 52-week low taking it to $0.41 where it is meeting resistance. The MACD and the RSI are both indicating that we could see more added to the advance if E can break above $0.41.
The macroeconomic issue with this company, and others in the oilfield construction and service sectors, is that with the weak price of oil exploration and production companies are cutting back on their capital budgets. A classic case of when you clients are hurting you hurt worse. From a technical perspective it appears that a trade is setting up but not a trend reversal. The shares are labouring under an established downtrend and a death cross which define the trend we must respect.
Make it a profitable day and happy capitalism!