Mr Price Group Limited (JSE: MRP) has seen its share price appreciate over 14.8% year-to-date despite a recent decline. However, the company’s high P/E ratio of 14.6x raises concerns. This is significantly higher than the South African market average of 6.5x, indicating that the stock might be overvalued.
Analysts’ earnings growth forecasts for MRP are only at 10% per year over the next three years, which is in line with the broader market. This suggests that the current share price might already be reflecting future growth expectations. Existing shareholders might be looking to sell if the P/E ratio falls towards the industry average.
On the other hand, MRP’s share price performance over the past five years has been underwhelming, with a 19% decline. While earnings per share (EPS) did improve slightly during this period, the market seems to be more focused on negative factors. However, if EPS continues to rise, the share price could see a positive correction in the long term.
Technical Analysis
Mr Price’s share price is currently trading slightly lower within a rising wedge pattern, near its 18-month high of 18,488 cents. The price sits comfortably above the bullish 50-SMA (blue line), 100-SMA (orange line), and 200-SMA (red line). Additionally, the RSI (Relative Strength Index) sits at 64.81, well above the 50.00 level, suggesting positive momentum.
A sustained push above the 18-month high could see the price reach an initial resistance level of 19,445 cents, potentially confirming the bullish trend and opening a path towards 20,372 cents. However, a break below the rising wedge support could lead to a decline towards the 23.60% Fibonacci retracement level of 17,087 cents. A break below the 23.60% Fibonacci retracement could trigger a sell-off, with the 50.00% and 61.80% Fibonacci retracement levels (15,519 cents and 14,818 cents respectively) coming into play in the short term.
Summary
Mr Price’s share price faces an interesting crossroads. The technical indicators suggest continued bullish momentum with a potential upside towards 20,372 cents. However, the high P/E ratio raises concerns about overvaluation, and a potential pullback could see the price test support at 17,087 cents.
Sources: TradingView, Trading Economics, ShareData.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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