ARB makes its own market tracks

In true off-road style, the stock has bucked the general trend and returned 55 per cent in the past three years, writes Rod Myer.

In true off-road style, the stock has bucked the general trend and returned 55 per cent in the past three years, writes Rod Myer.

MOST stocks travel along the smooth highway of the general market. But ARB Corporation, which manufactures, distributes and sells accessories for four-wheel-drive vehicles, has been in off-road mode for most of the past seven years.

A quick look at the graph provided by Rob Shelley, a councillor with the Australian Technical Analysts Association and the director of Total Trading Concepts, shows that while the market boomed between 2005 and 2007, ARB ground along in a trajectory well below the S&P/ASX 200 market index.

When the market tanked in early 2009, so did ARB, recording what technical analysts call a "double bottom".

Shelley says in retrospect the double bottom was in fact a sign of strength. Many stocks in that period fell way below their 2005 levels, making "lower lows" as they reached nadirs not seen for many years, and in some cases, in their history.

When the market reached its 2009 low, ARB changed into low range and began to climb. It followed the market trajectory upwards until early 2010. Then, when the market turned down, it diverged (at the red circle) and its share price continued to rise.

Shelley says the stock has been in an uptrend since 2009. This uptrend moved into its consolidation phase about a year ago with the stock trading between $7.30 and $8.30 (represented by the red rectangle on the graph), and last week broke out to hit $8.80. That breakout may have been caused by a coming dividend payment. If the breakout lasts and the share price beats the upper resistance level that has hindered it over the past year, it could move to $10, Shelley says.

ARB is up 33 per cent since it took a dip with the market last September, and has risen 333 per cent from its low of about $2.60 in early 2009. The ASX 200 has risen only 36 per cent since March 2009.

ARB has a market capitalisation of $267 million. Its dividend yield is a miserly 2.7 per cent compared with the sector level of 5.2 per cent. But it has returned 16.1 per cent to investors, mainly through its share price rise, in the past one year, and a stunning 55 per cent a year over the last three years. Over 10 years, the figure is a still very respectable 18.7 per cent. Earnings per share are expected to be stable this year at 52.9 per cent, and analysts predict the EPS will jump to 62.5 per cent next year.

This column is not investment advice. Those wanting to invest should seek professional counsel and do some homework.

rodmyr@ozemail.com.au