GuruFocus summarises TSCO (Tesco) full year results: PTP + 1.6%, diluted EPS +2.1%. UK LFL (ex petrol) -0.9%, UK revenues up. International sales up 9.4%, trading profit up 17.7%.
Market are disappointed with these results: share price slipped 2.53% to 317.2p, whilst the Footsie is up 0.1%. I had bought at about 327p.
With hindsight, I did a couple of things wrong:
- I bought a profit warning. I posted earlier this month about James Montier’s research that profit warners underperformed the market over a period of 6 months, even after the initial drop
- My technical reading was way wide of the mark. Prior to the profit warning, TSCO was trading in a narrow range. As a result of the profit warning, it gap down hard on large volume. This is known as a breakaway gap. Typically, what happens according to this site is that a new trading range is established, and you shouldn’t expect the gap to be filled quickly. I had expected that it would, and therefore I had completely misread the situation.
If my understanding is now correct, then we have experienced another gap down, and probably a new lower trading range for some time, rather than a quick positive reversal in fortune.
So far it’s looking like Neil Woodford 1, Warren Buffett 0.
I fear I’m rationalising with myself here, but at a PER of 8.8, I think there’s a lot of downside protection, esp. given the stability of the business. Let’s not forget that international sales did rather well.
My suspicion is that shares will drift lower over the next few months due to lack of compelling reason to buy, despite the protection afforded by the low PER on underpinnings of the divvie. We shall see. I continue to hold.
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