How to Know What Makes a Stock Chart Strong
Determining whether a company’s chart is pointing to strength can be a real challenge.
Real-money columnist Paul Price looked at the performance of one specialty retailer to gauge its next move.
Designer Brands (DBI), perhaps best known to customers for their DSW distribution chain, has been doing well lately. The company’s stock price has climbed, recovering from a sharp decline in early March, and it recently announced that it will resume paying quarterly dividends.
Now Paul Price has his eye on it, writing that his target for this stock is “north of $28 by this time next year.” But stocks fluctuate and many companies go up in value over 30 days only to lose it all again a month later. What makes DSW different?
Three elements emerge from Price.
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First, he writes, “I predicted they would start quarterly dividends again, and now it’s happened. The annual rate was $1 per share in the two pre-covid years 2018-2019. It was cautiously reduced to 10 cents per quarter in early 2020 due to government-mandated store closures.
So, “after a two-year hiatus, quarterly payouts are now restored to a nickel per share, with much higher rates on the horizon.”
As they say, the news you get is not the news you think you get. What is important here is the tendency. It’s not that Designer Brands is now paying a $0.05 dividend, or not. It’s that a company with a history of strong dividends has started paying them again. This gives Price reason to believe that now is a chance to buy a strong dividend stock before it is priced this way.
“The second piece of [good] The news was management’s increase in earnings guidance for fiscal year 2022 (ending Jan. 28, 2023) to $1.80-$1.90. The midpoint of $1.85 would be well above the recently reported adjusted earnings per share of $1.70 for fiscal year 2021. GAAP came in at $2. In other words, Designer Brands expects earnings to increase year-over-year from 2021.
This corresponds well to the third element of Price’s analysis. Long-term forecasts call for this company’s EPS to exceed $2.80 over the next five years.
So, DBI’s story suggests a company that will start paying strong dividends again. Its current earnings suggest cash flow that could support those payments, and its long-term forecast suggests continued cash flow in that direction. Together, these elements make for a potentially good investment to get started early, according to Price.