When TPG Telecom (TPM) posted their full year results in September, the stock was trading on a lofty P/E of 28 times next year’s earnings. Unfortunately for investors, the results came in under expectations, margins were facing headwinds, and the outlook was a little underwhelming. The shares were punished, with the price falling from nearly $12 to the low $9’s on the day of the announcement. Since then it has been one-way traffic for TPG Telecom. The stock had continued to come under selling pressure as short-sellers hit it hard and investors headed for the exit. The last several weeks have not been kind to any growth companies on the market with high valuations, and this sentiment in could not have come at a worse time for TPG Telecom. In the last couple of weeks we have invested client money into Vocus for the longer term, and now TPG Telecom is showing some buy signals for the shorter term trader.
When a stock starts falling, it will often find support when it retraces 50 percent of the prior uptrend. This uptrend started in 2012 and ended this year. For TPG Telecom, this 50 per cent retracement happened at the end of last week. The share price managed to stabilise in the face of a savage sell-off getting underway in the rest of the market. As soon as we had a positive session in the market on Monday, TPG Telecom rallied nearly 5 per cent on healthy volume. So we are getting the first signs that a lot of the selling has dried up for now. I am expecting TPG Telecom to now bounce here and we could see a nice rally to over $9. However, a word of warning – uncertainties still exist here. A strong rally in the next several weeks or so will meet selling pressure again as investors then start to worry about what lays ahead in the February half yearly results. I would be keeping my stop losses close and look to sell into the rally.
Contributed by Fairmont Equities: (VIEW LINK)