There are times when equities start a bullish move with an increase in volumes and price bursts. And this is in the order of things. But sometimes if you go for these companies to make the classic assessments (graphic and fundamental analysis) you will be amazed.
Why? The answer is not simple for two reasons: psychological and fundamental analysis.
The first, because when there are no certain budgetary conditions (e.g. increase in profits, conclusion of a deal, winning a contract, growing economic prospects) it is really difficult to make purchases of a certain size and justify even strong increases.
Why does an overvalued stock for the balance sheets and for the consensus of analysts explode upwards? Earning on the stock exchange methodically
Our investment model wants us to buy undervalued stocks at the beginning of an uptrend and sell overvalued stocks when the trend reverses downward.
Then as usual, not everything is white or mole and not everything is so simple. This is the case of Banca Popolare di Sondrio (MIL: BSPO).
Based on the discounted cash flow valuation model, the overvaluation is very high (well above 50%). It must be said that PE (14.5x) is lower than the reference market (16.1x) and that profits will grow by 24.84% per year. The analysts’ consent is for quotes in line with the fair value.
The share closed the trading day at 1.805 + 7.38%. Since the beginning of the year it has marked the minimum at 1.171 and the maximum at 2.74.
While the annual trend is bearish, the daily, weekly and monthly trend points to further increases.
On the weekly time frame it seems very clear a validated double minimum pattern with a target of 1/3 months in area 2.24.
What better investment strategy to apply?
Buy the market stock with stop loss at 1.68 and keep it at 2.24. It is an interesting trading operation.
We will proceed in steps.