Reitmans Canada Ltd. coming off a 52-week high

Feb 23rd, 2015 – 1 Comment

Currently there are no indicators that we can expect a trend reversal.


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RET.A LOGO

Good Morning Lou,
I really enjoy your insights. This is my first request of you. I bought Reitman’s at about 6.00 in August 2014 and it has had a good run.What would be your take on the future of this stock at this time.
Hope you can help me out.

Vern

 

Hey Vern,

 

Thanks for the assignment and your kind words. Both are greatly appreciated! And please feel free to request an analysis on any stock in your portfolio or on your radar. You are amongst friends here.

Reitmans Canada Ltd. (RET.A TSX) operates over 700 women’s fashion retail outlets across Canada under a number of banners. The familiar brands you will recognize include Reitmans, RW& Co., Penningtons, Addition – Elle, and Thyme Maternity. The company is in the process of closing all of its Smart Set stores over the next eight to fourteen months and some speculate that this could be setting the stage for a sale.

The company faces a number of external issues along with the entire Canadian retail sector. Slowing economic growth as a result of weakening commodity prices, rising levels of consumer debt, and the falling value of the Canadian dollar are all factors that need to be considered. Management has been able to increase profits in response to falling sales by cutting costs via closing or rebranding under performing locations and reducing staff levels. There are however limits to how much any retailer can cut costs without affecting the shopping experience.

A review of the charts will help identify how best to manage your position in this stock.

 

RET.A

The three-year chart depicts a stock that was trading in a range with support at $5.75 and resistance at $6.50 from June into December of 2014. In early December the MACD and the RSI both generated buy signals that saw the shares move decidedly higher reaching a 52-week high of $8.48 by late January of 2015. At the top both the MACD and the RSI generated sell signals as RET.A  became overbought. As the stock came off the 52-week high it began a steep decline that breached the 50-day moving average.

 

 

 

 

 

 

 

 

RET.A2

The six-month chart highlights the overbought situation that induced some investors to turn their paper profits into cash. In this case the profit at the top from a $6.00 purchase price looks like a 41% gain on invested capital not including the dividend that yields 2.86%. Currently there are no indicators that we can expect a trend reversal. There is also a paucity of support until $6.50.

If you still own RET.A you are sitting on a 16% capital gain and will have to decide if you want to bank the profit or let your capital ride.

Next time I will cover Long Run Exploration Ltd. (LRE TSX) for Bruce

Make it a profitable day and happy capitalism!

 

 

 

 

 

 

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