Super Cheap doesn't look super cheap but it's super value

THIS week, technical analyst Rob Shelley looks at another stock that is showing promising signs on the charts despite the choppiness in the general market: car accessory supplier Super Cheap Auto Group.

By InvestSMART · 14 Sep 2010

By InvestSMART ·
14 Sep 2010

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The stock was in a strong uptrend during 2009, rising from $2.20 to be at $6.06 now. That is a situation that investors might normally look at and think means they have missed the boat and the stock is not likely to deliver more growth in the near term.

But Shelley, a member of the Australian Technical Analysts Association and director of Total Trading Concepts, sees things differently.

Generally, stocks in Super Cheap's position are either riding for a fall or are likely to trade sideways, Shelley says. And, indeed, Super Cheap has been trading roughly sideways in recent times. However, the chart tells a more complex story. Super Cheap's recent consolidation has formed an ascending triangle with a flat top.

That flat top has formed a resistance line, a price zone where sellers come in and put downward pressure on the price. But the ascending triangle is formed because buyers are prepared to pay higher prices for the stock. (See the recent "higher lows" formed on the black line, which is the Super Cheap share price.)

The stock has gone through the resistance line in recent times and that, Shelley says, indicates that the sellers that were at the resistance zone have sold. "If this is the case, it leaves fresh new buyers in the market willing to pay higher prices."

Another positive sign is that Super Cheap is trading above the 30-week moving average (red line), and the 10-week moving average (blue line) is above the 30-week moving average. The recent consolidation has been reached on low volumes, a further indication that sellers are out of the market.

The fundamentals also look good. Earnings per share for 2010 rose 13 per cent and the full-year dividend was up 19 per cent.

Return on equity is a low 14 per cent, presenting the possibility of further growth and earnings are expected to grow 21 per cent this year. Dividends and earnings per share have been on the rise for five years.

As always, neither Shelley nor BusinessDay is offering investment advice. Those interested in investing should seek professional help and do their homework.

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Frequently Asked Questions about this Article…

What does the article say about Super Cheap Auto Group’s current investment outlook?

The article says technical analyst Rob Shelley sees promising signs for Super Cheap Auto Group despite a choppy market. Chart patterns (an ascending triangle and a recent breakout), supportive moving averages and improving fundamentals (rising earnings and dividends) point to potential upside, although the article stops short of investment advice.

What chart pattern has Super Cheap Auto formed and why is an ascending triangle important?

Super Cheap Auto has formed an ascending triangle with a flat top resistance. An ascending triangle is bullish because it shows buyers are willing to pay higher prices (higher lows) while sellers hold a resistance level; a breakout above the flat top can signal fresh buying interest and a potential upward move.

Has Super Cheap Auto broken its resistance level and what would that mean for investors?

Yes — the article notes the stock went through the resistance line recently. According to the analyst, that suggests the sellers at the resistance may have exited, which could leave room for new buyers to push the price higher. Investors should view this as a technical signal, not a guaranteed outcome.

How do moving averages look for Super Cheap Auto and what do they indicate?

Super Cheap Auto is trading above its 30‑week moving average and its 10‑week moving average sits above the 30‑week line. That alignment is typically considered bullish in technical analysis and indicates the medium‑term trend is positive.

What do the company’s earnings and dividend trends look like?

Fundamentally, the article reports Super Cheap Auto’s earnings per share rose 13% for 2010 and the full‑year dividend was up 19%. Earnings per share and dividends have been rising for five years, and earnings were expected to grow about 21% in the coming year according to the piece.

Is Super Cheap Auto’s return on equity (ROE) a concern for everyday investors?

The article states Super Cheap Auto’s return on equity is a relatively low 14%. Rather than a red flag, the analyst suggests a lower ROE can present the possibility of further growth; investors should weigh ROE alongside other metrics like earnings growth and dividend history.

What does low trading volume during the recent consolidation mean for Super Cheap Auto’s stock?

The article points out the recent consolidation happened on low volumes, which is interpreted as an indication that sellers have largely left the market. Low volume during consolidation can make a later breakout more sustainable if buying volume returns.

Does the article offer direct investment advice on buying Super Cheap Auto?

No. The article clearly says neither Rob Shelley nor BusinessDay are offering investment advice. It recommends that anyone interested in investing should seek professional help and do their own homework before making decisions.