Well, 29.5% to be exact, but by the laws of stats you can round that up to 30%.
This is frankly remarkable. Last week I published the results of Safestyle’s first half of the year including my own analysis of those figures. If you didn’t catch that you can click here to read my own thoughts upon the matter.
The short story was they were terrible. I mean, bad. By any measure. But that hasn’t see their share price absolutely go north. So what is behind the rapid rise?
Oversold in the first place?
There have been comments out there that the rapid sell-off in the Safestyle share price has been wildly overdone in recent months. Traders have been caught up in the hype and offloaded to prevent losses becoming worse.
When you look at all of their previous trading updates and countless profit warnings you can see why. It was one after another after another. So you can understand why people were keen to get out while they still had some money in their shares.
I’m not sure I buy into this argument. If a company has to give multiple profit warnings then you have to start giving serious consideration as to the health of the company. You only need to look at the likes of Debenhams, House of Fraiser, John Lews and other major UK retailers who have given profit warnings in the past and now find themselves in serious trouble. It was only days ago that John Lewis announced an eye watering 99% drop in profits.
And it’s not as if the quarterly trading updates have had much to be positive about either. It’s all been negative. So when you combine these two factors then there doesn’t seem to be much to cheer about.
Buying the dip
The biggest reason, in my humble opinion, is that traders are buying the dip. Where traders dive in deep when the share price is as low as they think it will go and buy a ton of shares cheaply hoping that they will rise. If they do then they stand to make a decent amount of money. If they drop further then they haven’t lost all that much in the grand scheme of things.
My estimate is that investors have read the H1 report, assessed that things cannot get much worse from here so now might be a good time to buy up shares again on the hope that the turnaround will start to bring results in H2. They don’t have much to lose either way.
If I was an investor this is exactly what I would be doing, which is what is happening now, and has caused the share price to do this:
Credit: Bloomberg
That’s a 29.5% rise in two days. Safestyle hasn’t seen a rise like that in a very long time. If you look at the volumes of trade in the bottom right hand corner of the graphic you’ll see that hundreds of thousands of shares were traded in those two days. Buying the dip if ever I saw it.
What tends to happen in the days after a rapid rise is some stock taking takes place. We may well see some of those traders cashing out now hoping to make the most of the rise and not risk any steep fall damaging potential earnings. I don’t think it will drop all that much, perhaps within a 2-5% range, which of late would be pretty sedate.
Do I think that this is the start of a recovery though? No. There are many problems to put right for the company before anyone can look at it as stable. I have gone over those issues in depth in previous posts so I won’t do it again here. But with a cash pile that is quickly running dry and market share shrinking quickly, something has to be done immediately to arrest the downward spiral and to justify any future share price rises.
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