Stoneco hits lower rail of channel and gets bullish signal from Tickeron’s Trend Prediction Engine

Stoneco (Nasdaq: STNE) debuted on the Nasdaq exchange on October 25, 2018. With the stock coming up on its first anniversary, it just recently hit the lower rail of an upwardly sloped trend channel and it had a bullish signal generated from Tickeron’s Trend Prediction Engine.

Looking at the stock’s daily chart over the past year, it has been rather volatile for investors. We see that the IPO price was $32 and the stock promptly fell to a low of $16.14 in December. Of course the overall market was falling sharply in the fourth quarter, so it wasn’t a great time for an IPO.

The stock promptly rallied back from its low and by the beginning of April the stock had risen above the $45 level, a jump of 180% from its low to its high. The stock fell once again and dropped to the $25 level in the first few weeks of April. The stock consolidated from mid-April through the end of May.

The low at the end of May marked the beginning of the trend channel. If we connect that low with the low from August, we get the lower rail. The parallel upper rail connects the highs from July and August.

Because of the short price history, there isn’t a lot of past data to work with from Tickeron, but the Trend Prediction Engine generated a bullish signal for Stoneco on October 4. The signal showed a confidence level of 73% and it calls for a gain of at least 4% within the next month. There have only been three previous bullish signals for Stoneco, but all three have been successful.

In addition to the signal from Tickeron and hitting the lower rail of the channel, the stock just moved back above its 50-day moving average. According to Tickeron’s records, in 4 of 4 similar backtested cases where Stoneco's price crossed above its 50-day moving average, its price rose further within the subsequent month. The odds of a continued uptrend are 90%.

Stoneco’s fundamentals are somewhat mixed at this time. The company saw earnings jump by 157% in the most recent quarterly report while sales jumped 69%. Sales have averaged growth of 69% per year over the last three years and the company boasts a profit margin of 31.1%. All of these indicators are really good, but there are some areas of concern as well.

The Tickeron Valuation Rating of 77 indicates that the company is slightly overvalued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization.

The Tickeron Profit vs. Risk Rating for Stoneco is 100, indicating that the returns do not compensate for the risks. Stoneco’s unstable profits reported over time resulted in significant drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating for the industry is 78, placing this stock worse than average.

Looking at the sentiment toward Stoneco, we see pretty pessimistic readings from analysts and short sellers. There are 11 analysts covering the stock at this time with five “buy” ratings, five “hold” ratings, and one “sell” rating. This puts the buy percentage at 45.5% and that is well below the average buy percentage.

The short interest ratio is at 6.87 currently and that is well above average as well. Both of these indicators point to high levels of pessimism for the stock. From a contrarian viewpoint, this could be a good thing if the stock continues to trend higher.