Stock In Focus - Is Dart Group Running Out Of Drivers ?

21st Jul '15 by Edward Croft

12 comments 17571 reads

Dart Group has long been a favourite of Stockopedia subscribers and it’s a stock I currently hold a small position in. A few days ago the company updated the market with some rather positive full year figures. Paul Scott gave his opinion on the headline numbers in his typically timely fashion and I thought, now that the numbers have been digested by the Stockopedia engine perhaps I should give mine.

Taking a NAP…

This year I named Dart (rather reluctantly) as one of my top 10 New Year NAPS. It had had such a good multi-year run already that my biases screamed for me to avoid it. But I took a deep breath and yielded to the will of my selection criteria. It has now stormed to an additional 50% return in less than 7 months.

The move began with a positive trading announcement in March. Dart spiked up a huge 18% on the day to 360p, prompting much dialogue and head scratching between subscribers on the boards about what to do next.

The disagreement prompted me to write a piece in favour of continuing to hold. After all, there is a tendency for stocks to continue to rise after an unexpected earnings announcement. This phenomenon is known as PEAD - the post-earnings-announcement-drift. It is well documented in the academic journals and as a student of the momentum effect, I wanted to remain exposed to this key return driver. If in doubt it’s best to do nothing.

But the stock has not just drifted, it’s surged by another 23% in barely another 4 months, with the latest move maturing on the company’s full year numbers released last week.

Notably though, the moves have become less powerful on each announcement. 18.5% on the March announcement versus 4.5% on the July announcement. Is Dart Group running out of steam ? Or is it running out of something else ?

A quiver full of arrows

Dart Group's numbers have now been properly digested by the Stockopedia engine after last week’s update. Our blended measure of the stock’s Quality, Value and Momentum - the StockRank - has fallen by 13 points almost overnight (down to 83 from 97). Having seen Dart at the top of the ranking charts for such a long time it's gratifying to see the algorithm becoming more discerning in Dart’s case. But…

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Glaws2

21st Jul '15

Ed - an excellent explanation as to what has driven the change in the stockranks. Thanks.

Damian Cannon

Another excellent post for sure. Digging into the reasons why the ranking numbers have changed is extremely useful as are the comments on what sort of lag we might expect between audited/unaudited results appearing and the ranks actually reflecting these changes. It might be useful to have some sort of indicator which shows how up-to-date the ranking numbers are? Then it would be clear whether recently published numbers are being fully reflected in the metrics?

Damian

Edward Croft

Yes I agree Damian. We should be flagging when numbers are just based on prelims or based on fully audited finals. There's always more detail in the finals than in the prelims.

Regarding the lag it really depends on the company. Sometimes it's weeks, sometimes it's months. Definitely worth checking the RNS history to get a handle on it. We'll be setting up RNS alerts pretty soon so this should be easier to track.

I'm making a development card on this - we're going to be completely rebuilding our financial statements browser later in the year. We've got all this data kicking around - just need to make it more visible on the main StockReports.

Chipspa

Ed, great post and this made me think a lot about potential value traps.
I have owned shares in DART for a couple of years now and although I have never been a fan of running any type of stop losses (being of the belief that a lower price provides better value etc), I am considering that maybe this is now a case where it is worth having a moving profit taking band at some level (say 10% below the market high). Presumably if the price were to fall say 10%, then your momentum score would also fall bringing the share further down your stockranks. The trouble with this is, that as someone who believes in fundamental valuation, a) I don't feel this share is particularly overvalued compared to the market at the moment and b) the news / director speak coming out from DART seems to be positive rather than neutral / negative.
Without negative news coming out, and unless you take the view that any negative share price movement will be leading negative newsflow, it is hard for me to justify to myself the reason for selling the share either at the moment or of course at lower levels.
Slightly more "stimulating" to my thought process (due to the fact that I have a much larger long position) is that your metrics indicate that Provident Financial PFG is a strong value trap. Momentum 86, Value 23, Quality 25. Ouch!
I have held this share for many years and it is by far one of my best performing and most consistent shares. For much of the time, it was one of the most shorted stocks in the market - I could never see why. Newsflow has pretty much been positive the whole time, earnings growth has been consistently good and it throws out decent dividends and dividend growth. It seems to be an almost perfect share (famous last words), but it falls neatly into your value trap category. I would appreciate any thoughts you have on this - or should the stockrank figures be taken with a pinch of salt in this case due to PFG being a financial / bank.
Thanks

Chris

janebolacha

There's a very thought-provoking article just out from Richard Beddard, really well worth the read in the light of this essentially figures-based discussion thread:

http://www.iii.co.uk/news-opinion/richard-beddard/dart%3A-bums-seats

Sounds good Ed. On the lag front I was thinking about the time delay between the results being published by a company (whether audited/unaudited) and the new numbers being fully reflected in Stockopedia. Does it take longer for this to happen with the audited finals (given the need to transcribe a larger amount of detail) or do you receive all updates within a reasonably similar time (from your data provider)?

underscored

Hi Ed,

Thank you for the write up. I have noticed a number of large winners that started out from a ~90, 90, 90 QVM pattern. Dart and Character both had this pattern in Nov 2014 before launching on impressive SP runs. Now obviously I can't see all the shares that were triple 90s that did not embark on such an impressive run, but I would be interested to know how many shares have had a triple 90 pattern and what their average 6/12 month return is (and dispersion of results).

As an experiment I purchased a lump of Agfa Gevaert NV last week, this is the only 3x 90+ currently cropping up in my investable universe right now.

Rusty2

Its a good question about triple 90s, I can only find one at the moment thats Indivior (LON:INDV). Air Partner (LON:AIR) maybe has been recently?

Edward would it be possible to have a screen for this?

Yes there's only Indivior right now. You can easily screen for Triple 90's like so - http://www.stockopedia.com/screens/triple-90s-64318/

Edward, Thanks but I meant as a screen as in Guru screens, so we can see the performance, say add when share has 3x 90 and then drop when SR drops below 90? It would also be useful if we want to look back as now its hard to see what had 3x90 going back, eg was Air Partner (LON:AIR) ever a triple 90?

22nd Jul '15

Herbie - there are so few stocks that qualify for those rules that I don't think it's practical to track. There's only 1 in Europe, only 1 in UK and only 5 in the US+Europe edition.

We are working on a backtester so it won't be too long (at least it won't be a decade ;-) ) before you can test these things yourself in the application.

Edward, OK fair enough, I will wait for the backtester. Thanks.

Stock in Focus - is Dart Group running out of Drivers ?

Taking a NAP…

A quiver full of arrows

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Edward Croft

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