SM Investments Corp. (SM): A Possible Double-Bottom Pattern?

SM Investments Corporation (SM) clarified news reports on August 22, 2018, released by Inquirer.net and bworldonline.com.

The news stated that SMIC is in talks with Airspeed, a freight forwarding and e-commerce enterprise, in a bid to expand its logistics reach. Informants look at a 35 percent stake in Airspeed.

Ask for a reply, Airspeed President and Founder Rosemarie Rafael confirmed that the company is in serious discussion with SM. However, they are yet to arrive at a decision.

Subsequently, SM Retail Director Jorge T. Mendiola reiterated that the SM would want to add more retail brands in its network should the opportunity present itself. The company is looking at hitting its 3,000 stores target within the next five years.

SM confirmed that the company considers a minority stake in Airspeed as well as the expansion plans of SM.

Goldilocks Acquisition

Moreover, SM confirmed in a separate disclosure that the company is in the final stages of completing a minority stake in the outstanding stock of Goldilocks BakeShop, Inc. With this acquisition, SM will hold 34 percent of Goldilocks’ shares.

Financial Performance

For the first six months of the year, revenues totaled PHP 204.90 billion. This amount is an 11.90 percent increase versus the recorded PHP 183.20 billion in the same period in 2017.

Merchandise sales of the company reached PHP 145 billion. It is a 10.20 percent rise versus the recorded PHP 131.60 billion in 2017.

Furthermore, it accounts for 70.80 percent of total revenues for 2018. It is mainly attributable to the opening of 3 SM Supermarkets, 2 SM Stores, 2 SM Hypermarkets, 9 SaveMore Stores, 4 WalterMart Stores, and 41 specialty stores.

As of the end of June 2018, SM has a total of 1,708 stores nationwide namely: 55 SM Supermarkets, 190 Savemores, 61 SM Stores, 49 SM Hypermarkets, and 1,304 Specialty stores.

Currently, SM Prime has 70 malls in the country with a total gross floor area of 8.14 million square meters. It also has seven malls in China with a gross floor area of 1.3 million square meters.

Expansion Plans

For the remainder of the year, SM is set to open two new malls. The company targets 79 malls before the year ends. 72 of these malls are in the Philippines, while the remaining 7 in China.

Total gross floor area target is at 9.5 million square meters.

Quantitative Data

3 Year Monthly Closing Prices – SM

3 Year Monthly Closing Prices – PSEi

Summary

The mean average monthly return of the PSE Index from the beginning of 2015 until October 2018 is at -0.21 percent. It is the average earnings one would have gotten by investing monthly in and out for the past three years.

On the other hand, SM generated a positive mean of 0.82 percent which means SM would have given better returns compared to investing in the Index as a whole.

The compounded annual growth rate of the index is at negative 0.18 percent per month. The lower closing versus the closing price in 2015 evidenced the decrease.

It means that if you invested in the index last 2015, you would have gotten no returns and even lost money in three years.

Meanwhile, SM generated a compounded return of 0.80 percent per month. As such, SM yielded better results than the PSEi.

Looking at the sample variance and standard deviation, SM showed higher values. These measures are a measure of risks.

Since SM showed higher values, it means the stock is riskier compared to the index. The index is less dangerous and is more stable as its standard deviation is very, very low.

It goes to show that the spread among returns or the volatility in the index prices is not that far-away spread.

To further compare risks, since SM is a stock, while the PSEi is a basket of stocks, we use the coefficient of variation.

The coefficient of variation measures the amount of risk (Standard deviation) per unit of mean return. SM has a higher Coefficient of Variation, thus confirming that the stock has a higher level of risk.

SM Investments VS The Index

On the other hand, the Sharpe ratio measures the rewards per risk taken.

In investing, one expects that in investing in anything, the rewards are more than the risk. In the case of the index, the compensation is negative 1.80 per 1 percent of the risk.

Simply put, it is generating losses for every risk an investor makes. Thus, it’s logical that it is not a worthwhile investment.

Don’t get us wrong. The data only covers the past three years. The index dropped for the past three years.

Therefore, it confirms that it is not worth it to enter since you would have generated losses than actually gaining from the market.

Meanwhile, SM generated a positive 4.24 percent return for every 1 percent risk taken. If you come to think of it, this is already very very good. It means that one has a 4.24 percent reward for every 1 percent downside risk.

Lastly, Beta is a negative number. SM and the index are moving in opposite directions. Visually, there is a positive beta since both stocks are on an uptrend for the past ten years.

However, during the last three years, it appears that SM is only slightly lower compared to its closing price in October 2017. The index dropped significantly compared to its October 2017 price.

It states that the index moves low faster than SM. It shows that SM would be a better investment in a downtrend market.

Should the stock reverse, it is better to invest in the index rather than SM since the index might also move high faster.

Technical Analysis

SM appears to be forming a double bottom, a bullish formation. It happened after the price fell below the neckline from a double top. It is a bearish formation with the head at 995 and the neckline at 910.

The difference is 85 points, making the breakdown target at 925 (910-85 points). The moving averages aligned bullishly with the 15 EMA and 20 SMA as immediate support while the 50 SMA as resistance.

Volume appears to support a bullish outlook. MACD is also bullish. RSI is currently consolidating sideways at neutral levels.

The estimated support is at 830 while the expected resistance is at 998.

Top 10 Players’ Sentiment – October 26, 2018

Trading participants of SM with a 100% Buying and Selling Activity as of Oct-26-2018 at 03:30 PM:

5 out of 38 participants or 13.16% of all participants registered a 100% BUYING activity
19 out of 38 participants or 50.00% of all participants registered a 100% SELLING activity
Top 10 Players’ Buying Average: 889.0640
Top 10 Players’ Selling Average: 889.8963

The psychological average price of the top 10 players as of Oct-26-2018 at 03:30 PM is from 889.0640 to 889.8963.

Top 10 Players’ Sentiment – October 22-26, 2018

Trading participants of SM with a 100% Buying and Selling Activity from Oct-22-2018 to Oct-26-2018 at 03:30 PM:

6 out of 62 participants or 9.68% of all participants registered a 100% BUYING activity
13 out of 62 participants or 20.97% of all participants registered a 100% SELLING activity
Top 10 Players’ Buying Average: 873.3632
Top 10 Players’ Selling Average: 875.6457

The psychological average price of the top 10 players from Oct-22-2018 to Oct-26-2018 is from 873.3632 to 875.6457.

Top 10 Players’ Sentiment – October 1-26, 2018

Trading participants of SM with a 100% Buying and Selling Activity from Oct-01-2018 to Oct-26-2018 at 03:30 PM:

14 out of 81 participants or 17.28% of all participants registered a 100% BUYING activity
4 out of 81 participants or 4.94% of all participants registered a 100% SELLING activity
Top 10 Players’ Buying Average: 866.9808
Top 10 Players’ Selling Average: 865.2264

The psychological average price of the top 10 players from Oct-01-2018 to Oct-26-2018 is from 865.2264 to 866.9808.

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