Dixons Carphone

Friday, 10th March 2017 17:04 - by Rajan Dhall

Shares in this company have been hit hard in recent times. Since the start of the year we have seen a 40% decline in the share price, with shares reaching a low of 241.20 at one stage. Since that extreme low we have consolidated around the 400 mark with price trying to settle and find value. In the coming months I still no reason for this trend not to continue and I will lay out the reasons why.

1) Inflation - Regardless of if we like it or not inflation will hit the high streets at some stage. The weaker GBP will mean companies who import goods will have to charge higher prices and unfortunately unlike companies like Shell, Glencore and GSK which most of the profit the company makes is in USD, this Co. is all GBP profit. Adding to those woes this also means higher technology import prices and we have already seen the like of Apple and Microsoft state that they will need to charge 20% more for their goods due to the weaker currency rate.

2) The P/E ratio of the company - This is just 9.6., this indicates that the challenges which may lie ahead have already been factored-in by investors The Co. now yields 3.6% from a div. which is covered 3 times by profit, to me this means the shareholder payouts could move higher even if profitability remains uninspiring.

3) Competition from online retailers - Even though the company has a online presence, Amazon, Ebay ect. may provide better value for tech savvy consumers and therefore grabbing the market share.

This daily chart shows the extent of the price fall since the start of the year. I have annotated the chart to explain the issues surrounding price action. We are currently underneath the value area which is pointed out by the bell curve on the right hand side of the chart. But this by no means indicates we will see a reversion to the mean. The support of 296.11 looks to be in jeopardy if traders and investors see any further fall in GBP or any more cost rises for imports. 

 

We are due to see the next trading statement on the 24th May and as a guide most surveyed analysts (from an unnamed financial terminal) feel this stock is a buy so this is pretty much a contrarian view. Adding to this the volume is heavy on the breaks to the downside and when pullbacks occur there seems to be a lack of conviction. It would not surprise me if there was a retracement but don't be fooled unless the significant resistances are broken (highlighted in chart) I feel price may be pressured in the long term.