Carrefour S.A.’s (CA:EN Paris) heavy share price reaction to last night’s profit warning should not be under-estimated. Down 14% at pixel time, the company’s lowered full-year profit and sales guidance was far from expected by the market, with key sentiment risk indicators displaying little sign of stress on OTAS. Add to this an overwhelming bullishness by ‘expert’ sell-side idea generators ahead of results and it’s unsurprising the stock is being punished so heavily.
Looking at the detail, positioning in Carrefour through options, stock borrow, and credit markets all exhibited benign readings when compared to historic norms, lead indicators that typically give our clients an early warning of potential upcoming risks.
For example Short Interest, a keenly watched gauge of Hedge Fund activity, was well within its 2-year average range at 6.23%, having seen a reduction from the exceptional highs of 11.5% in late June. This past week had seen only an incremental 0.8% increase heading into numbers.
The sharp reversal in price could also be attributed to the high wave of optimism preceding the release. The TIM alpha capture portal indicated a strong swathe of positive sentiment from sell-side brokers who were pushing the stock.
One small morsel of evidence pertaining to the potential issues besetting Carrefour was witnessed in the trend in earnings momentum. Over the last month, analyst’ forecasts were revised down by an average of 4.26%, well in excess of the sector average and placing it in the bottom 10% of all negative performers in the industry group……. although arguably this was already priced into the shares with price trending strongly with earnings momentum (see chart).
As expected, the fallout from Carrefour has further hit the European Retail Index, it underperforming the broader market by around 2% intraday and leaving investors challenged to find sector alternatives.
Clients with a global investment mandate wanting to re-invest in the Retail sector can use the new OTAS Screener app to identify alternative investment opportunities that are flagging positively in the wider sector. Uniquely, clients can configure Screener to either consider all OTAS core factors or prioritise just to those factors deemed most important in their investment process e.g fundamental, technical etc.
