SGP – a retrospective on my sell

I often call SGP (Supergroup) the worst sell I ever made. I had sold on 16 July 2013 at 942p, only to watch the share price climb much higher. A few days ago, I got an alert that the shares were down 20% from their 52w high. So I thought it would be interesting to revisit the shares.

My reasons for selling at the time was that the price versus 50dma rose above 25%, and I figured that the share price was over-extended. Looking back at the charts, I see that the RSI had made it into
overbought territory slightly before that. I wasn’t aware of the RSI at the time, though.

Imagine my dismay as the share price seemed to climb ever-upwards. I was anticipating a pullback within a few weeks of my sale, which never happened. The shares did trade sideways from mid-August to December. I’m not surprised, given the very strong gains that it had made previously. A consolidation phase was to be expected.

In December, the shares had consolidated enough, and its upward trajectory resumed. The shares reached a high of 1749p in April, and I was obviously disappointed that I had sold out far too soon.

Then a bad thing happened: momentum shares reached a peak, and the bubble popped. The shares now trade at 977p as at the time of writing. IF you had perfect timing, you would have made a considerable amount of money out of SGP. IF you were a bit slow on the trigger, then you would have seen much of those gains evaporate.

As it happens, over the period during which I sold, the share price is up around 3.2%, almost exactly the same as the Footsie, and a shade behind the FTSE 250.

So, putting that in perspective, I don’t think my sell was bad at all. The gains you make or don’t make are often quite sensitive to timing. I am also glad, in retrospect, that I didn’t chase momentum as the stock galloped away from me, tempting though it was. Momentum is fine, provided you can call the top, which is rarely a definite. I think it does illustrate the point that if you think the shares are
overextended, you are probably as well to back that judgment, rather than pine for what might have been.

So, my current thinking is that I think that technical indicators like RSI and moving averages are far from perfect, and often give faulty signals. Notwithstanding that, I don’t think they are useless either, and can be used to augment other considerations. One thing that I am exploring at the moment is the idea of combining quality, value, and the RSI. Conveniently, Stockopedia has a composite ranking for quality and value. So looking for the QV rank of at least 95, and an RSI less than 30 seems like an interesting strategy. You’re basically looking to good, cheap stocks that the market has dumped. The RSI should help you get a quick bounce back, and possibly help mitigate mistakes in the QV rank. I am keen to have quality as part of the ranking system, because I think that just using value can wind you in a lot of trouble from which the RSI wont necessarily bail you out.

Back to SGP, though. It has had a significant pullback, and now trades below its 200dma, as is oversold on RSI. Stockopedia shows that it trades on a PE of 15.5, with analysts expecting double-digit growth in earnings. Its value rank is mediocre, but if you believe the growth story, then the current price level looks like good value. The price is down 42% from its 52w high, which demonstrates just how volatile stocks can be.

The shares gapped down in May, coinciding with the release of their Q4 IMS. They reported total revenue growth of 13.3% – which is obviously quite good – but it looks like the market was spooked by the negative like-for-like figures, and that it expects sales growth to be towards the lower end of market expectations. The company looks set to continue its expansion, and now seems to have the infrastructure in place to support that growth.

So, that’s quite interesting. You have to ask yourself if you continue to believe in its growth story, and whether or not the like-for-like declines are ominous. If you believe that the fundamentals are still solid, then it looks like you can get a good entry point right now, especially given the fact that the shares are way oversold. Price can, and often do, go lower even when they are oversold, but that’s life.

I do not own any shares in SGP.

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About mcturra2000

Computer programmer living in Scotland.
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