For a reason best known only to the divine I continue to get spam from Motley Fool. I shouldn’t complain as the entertainment value it provides is high as is the motivational value. If ever I worry about the competition I open up one of their previous emails and giggle. Feeling refreshed I start the trading day invigorated as I am reassured that we will never run out of people to take money off.
The latest piece of gibberish I received begins with the following opening paragraph.
A wealthy businessperson and I have something in common… unfortunately, it’s not how much money we have. Instead, it’s our eagerness to buy a particular ASX-listed stock after it plunged 16% in a single day last week.
The stock they are referring to is the ASX listed company JIN.
The email is written in a somewhat ironic tone.
On Friday, the Jumbo Interactive Ltd (ASX: JIN) share price tumbled 16.2% as the company unveiled its FY24 full-year results.
Oh, it was a downright shocker of a result… I mean, revenue was only up 34% from the prior year. Can you believe it? And don’t get me started on the underlying net profit after tax (NPAT) of $46.4 million… up a pitiful 32%. But the dividends, oh, the dividends — 27% more than what Jumbo paid per share in FY23.
I hope you can detect the satire in my writing there. In all seriousness, I thought it was a phenomenal result — one I never would have guessed would erase nearly a sixth of the company’s market capitalisation from this ASX stock.
Some of the concern is rumoured to be Jumbo’s forecast FY25 underlying EBITDA margin range of 46% and 48%. Specifically, it suggests a decline from FY24’s 48.1% EBITDA margin. Layer this with the expectation of a ‘return to the historical number of large jackpots’ and ‘modest’ growth, and we have a recipe for selling.
What it displays is a lack of understanding as to how markets work. Markets unless it is something out of left field already knew about the result and had priced it in. Additionally, they look forward 12 to 18 months ahead. So the reaction to the current profit is a function of these two elements.
However, I thought I would take a technical look at JIN since it does provide some interesting lessons.
The chart below is a weekly chart going back to 2017.
To my eye, there are a few distinct phases. The strong uptrend from 2017 to 2019 – these were the glory days of this stock. This is followed by a catastrophic loss in value, followed by a partial recovery and then a period of stagnant noise. I have spoken before about investors chasing legacy trends – that is past strong moves that they think will instantly be repeated simply because they have bought the stock.
The next chart simply shows what I see to be the predominant weekly trends.
Whatever upward drift there was to the multi-year congestion was broken by the fall last week. What is also obvious is that JIN had been falling into the release of its result. My opinion has always been that if prices are falling into what is expected to be a positive result then you have a problem.
Adding more granularity by shifting down to daily merely confirms the dramatic nature of the fall.
The chart below shows the current level of drawdown in JIN.
Investors are not happy about the current state of price action. Price has remained stagnant for almost three years.
The broad lesson here is that just because a stock has gone down in price it does not automatically mean it is a buy. The pertinent lesson is that your opinion about what a stock should do is irrelevant.
Really appreciate the analysis and the lessons. Thanks.