By: Pej Hamidi
It’s not too often I find a stock that shows money flow (1) diverging from very early in the trend. This is very strange behavior because it shows persistent liquidation into the 400% rally since the Nov. ’08 low near $15. My proprietary momentum oscillator (2) also shows a negative divergence which begins around June of 2009. The Market Panic of ’09 obviously had no affect on VPRT. Instead it behaved more like a safe haven for investors trying to hide from the carnage.
It’s definitely an “online play” because of the company’s unique automation of the design and production process. This automation starts at the design step and ends with the delivery of the order. Highly efficient no doubt, but worthy of a P.E. of 39 in this market environment? The question is, how much more can earnings grow to catch up with the P.E. and bring it down, hence justifying these nose-bleed prices in the stock. Imagine your local print shop having 41,000 customer PER DAY! That’s why investors love this stock, perhaps a bit too much.
It’s a matter of time before competitors like R.R. Donnelley (RRD), which has twice the market cap PLUS a 5% yield (although negative earnings because of its June 2009 acquisition of a company that’s aiming to do exactly that which VPRT has mastered). I love VPRT as a growth stock, but my instrument panel on the weekly chart is showing five bearish clues; the fifth being declining volume since last September. Was last week’s technical action a Doji? Will there be a pullback to $50 to test the prior all time high, where the first Fib. retracement line falls as well, or will there be a deeper correction, perhaps into the 40’s? This company didn’t go public too long ago so there’s not much data to work with, and I don’t like shorting a stock when it’s engaged in such a solid trend. However, sometimes a contrarion play is warranted, and with the right execution on entry, it could be profitable very fast.
