This post formed the basis of an article which then appeared in the Australian Financial Review on 17 November 2016. Michael Gable is a regular expert contributor to the AFR. You can access the AFR version HERE.
Baby Bunting (BBN) is Australia’s largest specialty retailer of baby goods and has more than twice the number of stores as its nearest competitor. The company has only been listed for a year but it has impressed the market by achieving sales figures and earnings numbers which have been ahead of expectations. The balance sheet is sound, like for like sales growth is strong and new store rollouts can see Baby Bunting achieve double digit earnings growth for the next few years. On the back of their impressive full year results in August, the shares shot up towards $3.20. The share price looked very toppy back then so we have been advising clients to expect some weakness before buying any shares. Despite the shares having fallen more than 15 per cent since then, we can still see some further weakness on the way. However we are getting close to the buy zone.
Since the high in August, we have noticed the share price decline of Baby Bunting forming a particular pattern on the chart. It appears to resemble what is known as a “5 wave” decline in a branch of Technical Analysis known as Elliott Wave. This is identified by having 3 downwards movements, and at the moment we can only see two of these movements. This means that one more downwards movement is likely to occur. We saw this pattern play out with Telstra back in August, where we warned it being at risk of falling from above $5.60 to under $5.
A final movement down would see Baby Bunting head towards support at $2.40. That is the price level that I have told clients to wait for and that would represent a fantastic price for a company of this quality. Baby Bunting has its AGM on Monday 21 November so this would need to be watched closely for any catalysts to the next share price movement.
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