What do you think of Performance Sports Group – it tanked after Q3 earnings reports and 2016 outlook so wonder if now would be a good time to back up my truck? Any chance of it go belly up?
Thanks for the assignment. This will be the second time that I inspect the situation at Performance Sports Group Ltd. (PSG TSX). The last time was on January 20, 2016 when the shares were trading for $8.60. Mike wanted me to take a look at the stock and the research highlighted a number of factors.
The first thing that was evident on the chart was that the stock had hit a 52-week high of $26.10 in May of 2015 but had reversed the uptrend that began in August of 2011 near $5.50. The shares broke below support along the moving averages and a death cross formed in August of 2015. The stock was meeting resistance along the 50-day moving average in January of 2016 and it was advised to wait for signals that the downtrend was on the verge of a reversal.
In retrospect that was the right call. Signs of new leg up appeared by the end of the January 2016. Another audit of the charts will identify how best to proceed.
In early March investors hit their sell buttons on the announcement of revised EPS guidance. The revision reflected the Chapter 11 filing by one of their customers Sports Authority Inc. and potential consolidation in the hockey retailing sector.
The six-month chart highlights the big gap down which afforded few opportunities to get off the ride before the stock bottomed out at its 52-week low of $3.76. The stock traded ten times its average daily volume in the waterfall decline as investors bailed in a spate of frenzied selling.
Given the long term downtrend that has dominated trading since last May and the death cross that surfaced in August of 2015 you might be best advised to let patience be your guide. If you are willing to ignore the trend then think about picking away and building a position. In addition you should be willing to trade for profits when they are available.
Leave the truck at home there isn’t enough evidence to support taking a big position at this time. I can’t tell if PSG is likely to seek creditor protection but if its on your mind you should dig much deeper into its financials. It looks like the sports retailing segment is suffering from a paucity of buying which is never good for a sporting goods manufacturer.
Next time I will probe the case for Algoma Central Corporation (ALC TSX) for Bill.
Make it a profitable day and happy capitalism!