A tale of two momentums: HOME and DEB

HOME (Home Retail Group) and DEB (Debenhams) are two high street retailers. Both released their results recently: HOME yesterday, and DEB today. Both are large, boring, companies. Their market action is interesting to watch, though.

HOME had a Stockopedia M (momentum) score of 23 before it reported its results. That’s no great shakes. When it reported, the stock plunged around 13%. Its M score is now 16. It is down 4% today.

By contrast, DEB had an M score of 73. Much more respectable. When the results were issued, earlier, the shares jumped up nearly 4%. Like-for likes were up a little, debt down. It helps. A poster on ADVFN remarked “Debenhams met market expectations but nothing sparkling”. A fair enough evaluation, but the good news is that the market wasn’t expecting to be dazzled anyway.

I actually bought DEB in early June 2015. At the time, it had an M of 92, and an overall rank of 98. Performance has not been great: I’m down 9.5%. To put that in context, though, the All-Share index is down 8.5%, whilst HOME is down 23.9% over the same period.

There is a kind of moral here: stock ranks are not necessarily perfect, but they often help, and if you stick to the good scores, you are putting the odds in your favour. They are useful as guides.

Sometimes, it seems that you can get a lot of information from market action. DEB has a value score of 92, and a momentum of 73. The fact that the market has responded positively to the update suggests to me that I should stick around for awhile longer. DEB was never going to be a long term buy and hold, though, it’s just not that great a company.

The stock ranks will not yet have been adjusted for today’s market move. Undoubtedly HOME’s M score will go down, so it’s heading into stinky-fish territory. Sales were down 2%, and the margins were also down. That’s probably why the market reacted the way it did.

Paul Scott posted this morning that he doubled his long in HOME at 123p. So you should probably forget everything I just said.

ASX 3465
DEB 84.6p
HOME 120.9p

Update 23-Oct-2015: Paul Scott declared that he has tripled his holding in HOME, calling it a “back up the truck” moment. Paul is a very smart guy, so his analysis is likely to be be better than mine. BUT … HOME has a momentum score of 12. DEB’s score is 74. I am very cautious of poor momentum, as displayed by HOME.

Here’s some other statistics:

.
              2010 2015
HOME:
Revenues (£m) 6023 5710
OCF (£m)       354  191
OCF/Rev (%)    5.9  3.3

DEB:
Revs (£m)     2120 2323
OCF (£m)       207  218
OCF/Rev (%)    9.8  9.4
.

What we see is that HOME’s revenues, OCF and margin has declined. DEB has remained stable.Its margins are way better than HOME, too. Remember, HOME also reported earlier this week that sales were down, as were “cash gross margins”. So the situation is worsening.

HOME seems very value-trappy to me. You’re really gambling on things to improve, which is far from a sure thing.

Let me follow up in 6 months time to see where we are.

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About mcturra2000

Computer programmer living in Scotland.
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One Response to A tale of two momentums: HOME and DEB

  1. Pingback: HOME and DEB followup | Mark Carter's blog

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