An upcoming setup in EMAAR for a 24% return

29 Mei

EMAAR

I am looking to make a 24% return on EMAAR in the next 4-5 months.
The thesis is based on seasonality aligning with technical analysis.
If you look at the orange line in the chart above, which reflects the stock's seasonal performance, you will see that EMAAR typically rallies into it's August earnings report (Q2 financials).

Q2 usually beats Q1 only about 30% of the time but I think this time will be one of those occasions.
EMAAR saw a significant jump in it's Q1 earnings which I don't think will be a one time deal. More importantly, I believe this will be the expectation for the majority of investors, thus making it likely that EMAAR will rally into it's Q2 earnings.

Additionally, analysts' estimates are still not high for Q2. They are 22% higher than EMAAR did YoY but 14% less than EMAAR already delivered last quarter (see financials posted on image below).



I think EMAAR can beat those expectations.
Remember this tends to be the seasonal performance of the stock anyway this time of year. I just think that there is more reason for this to happen this year.

That said I am not going to just buy EMAAR at any price. While the stock is trading at a deep discount to it's DCF model 5 years out (see image above), it is trading at the high band of it's profit margin. With a PM of 39% it is already near its all time high PM of 41%.
I track PM over time because most stocks in the UAE are Cyclical. Once they make a lot of money they usually cycle lower to hit the lower band of their historical PM. This is to avoid buying a company at the top of it's cycle (where it's financials would undoubtedly look great but would be unsustainable).

According to my technical analysis shown on the black & white chart above there will be minor support for the stock at 7.14 & 7.01 AED. Their will also be major support at 6.88 & 6.78 AED.

I plan on buying at around 7 dirhams and then doubling down at 6.78 for a two tier entry.
From there I expect at least a 24% rally into September for EMAAR.
Anyway, that's what I am doing with my money. You do you.
Good luck.