eyeQ: upside for this cheap share?
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. A lot of bad news is already in the price of this mid-cap.
8th May 2024 10:39
by Huw Roberts from eyeQ
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"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
WH Smith
Trading signal: long-term strategic model
Model value: 1,257.29p
Fair Value Gap: -13.68% discount to model value
Model relevance: 68%
Data correct as at 8 May 2024. Please click glossary for explanation of terms.
WH Smith (LSE:SMWH) had a tough time at the end of April. Earnings results were decent but some exceptional accounting issues resulted in the biggest one day sell-off in over two years.
Thus far the stock has stabilised but failed to post any kind of recovery.
However, from the big picture perspective, while macro conditions deteriorated for much of early 2024, eyeQ’s macro model value has tried to make a bottom and has edged slightly higher.
The contrast between the big sell-off and stable macro model value means WH Smith is now 13.68% cheap to the big picture stuff like economic growth, inflation, the Bank of England and more.
Given the retailer’s heavy presence in airports and railway stations, the summer holiday season will be critical. That’s also borne out by our model that shows WH Smith wants healthy economic growth and risk appetite. Interestingly, it also wants a strong pound – not all stocks want that but, in this instance, a strong currency makes international travel for UK tourists cheaper.
So, at a minimum, a fair amount of bad news is priced. And, for those who foresee a strong 2024 summer holiday season, WH Smith could offer decent upside.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
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