A Good Entry Point for Constellation Brands (STZ)?
By EidoSearch
“Beer is not a good cocktail party drink, especially in a home where you don’t know where the bathroom is.” – Billy CarterConstellation Brands (STZ) has been on a two year “bender”. A little over two years ago, on June 18, 2012, the stock price stood at $19.37. Through July 3rd of this year it had run all the way up to $91.15. A return of about 370%. Recent earnings, reported on July 2nd, were strong. They doubled net sales and earnings rose from $.38 per share to $1.07 from the prior year, thanks in large part to their acquisition last summer of Grupo Modelo’s U.S. licensing rights. Corona and other Mexican beer brands are driving growth at the company vs. their slower growing wine brands, and in a quote from February (IBD), CFO Bob Ryder said,
With solid fundamentals, macro market concerns and STZ being the world’s largest wine company as well as having the #1 imported beer brand in the world, this may be an appealing entry point in a Consumer Defensive growth stock. However, over the past month the stock has suffered a bit of a hangover in the form of an -8.3% haircut on gains for the year. So now, the question many investors are asking is, “do I lock in gains or do I build here at a good entry point? Investors who check out the chart below will have varying responses based on their experience with similar investments from the past. Their experience might be that the stock continues to tumble back further after a strong run-up. Others might remember times where this was a short term pull back and a great time to build the position further. EidoSearch technology uses that same approach, associative memory, but has the capacity to objectively recall all similar instances of when a Consumer Defensive stock has set up like this historically. This provides historical precedent and analogs of these historical instances for investors to review for similarity to the current environment. More importantly, it provides an objective gauge to determine if this is a good entry point.
We found 54 similar instances of the current 3 month price trend in STZ historically in Consumer Defensive stocks, and in 42 of 54 (78%) instances the stock is up in the next month historically and the average return of all instances is 4.7%.The below chart shows the 1 month forward return historically, going as far back as 1981, of all 54 instances and the consistent positive reaction from investors when they’ve seen this price trend historically. What we call the Reward to Risk ratio, essentially the upside to downside at current, is 4 to 1 in favor of the upside.
Is this a good entry point? I had a t-shirt in college that said, “Beauty is in the eyes of the beer holder”. If you like the fundamentals at this price, historical precedent says that this is typically a good time to buy. Replicating the Market Call in EidoSearch (Clients Only)
Have a great week. |
