eyeQ: a £2bn stock about to deliver?
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. This time it analyses a stock that could be cheap.
26th June 2024 11:12
by Huw Roberts from eyeQ
"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
Deliveroo
Trading signal: long-term strategic model
Model value:139.31p
Fair Value Gap: -6.02% discount to model value
Model relevance: 54%
Data correct as at 26 June 2024. Please click glossary for explanation of terms.
Delivering opportunity?
2024 has seen a spate of takeover bids for UK companies from overseas buyers. This is an investment theme that has legs.
UK companies look cheap on several metrics relative to their international peers. And there are growing hopes that the worst of the Brexit fall-out is behind us and a new Labour government can bring in a new sense of optimism. If so, then UK companies could continue to attract interest from global players.
This morning there is renewed speculation that an old target – Deliveroo (LSE:ROO) – could be back in play. There are reports that US food delivery company DoorDash Inc Ordinary Shares - Class A (NASDAQ:DASH) are back after talks last year failed. Whether the deal gets done will be all about company fundamentals – price negotiations, how Amazon respond (they own 13% of Deliveroo) etc.
As readers know, however, there is also a macro angle. There is always a macro story at work in investing - economic growth, inflation, the Bank of England policy stance all matter.
On eyeQ, Deliveroo is 6.02% cheap to macro conditions. That’s the cheapest level the stock has been on our models since the first week of January.
It’s also notable that macro conditions are improving. Model value has risen 4% in the last month. So two boxes on our checklist have been ticked – the stock is cheap and model value is rising.
Sadly, the third box to get a bullish signal is missing. Our macro relevance score is 54%, i.e. the macro environment explains just over half of moves in the share price. Our threshold is 65% - macro relevance needs to be above that for that stock to be in a “macro regime” (i.e. the big picture stuff is the most important driver of price action) and a signal to be fired.
For now, Deliveroo looks interesting, the eyeQ smart machine is favouring the upside, but no signal has been delivered yet.
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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