Stock Pick: Foot Locker Inc. (FL)
Foot Locker Inc. (FL) is an American retailer of apparel and shoes. The company operates 3,270 stores in 27 countries in North America, Europe, and Asia. These stores come in various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. As of January 2019, the company has 15,141 employees.
Technical Analysis of Foot Locker Inc. (FL)
We like FL because it is one of the few S&P 500 stocks that has gone through a major correction and is now showing signs of reversal. After printing an all-time high of $79.43 in December 2016, the stock showed signs of bullish exhaustion. The combination of bearish divergence and a double top pattern was enough to drive FL to as low as $28.42 in November 2017.
From that point, the stock bottomed out and started its reversal process. Over a year later, we believe that FL might have reversed its trend.
Technical analysis shows that FL has breached resistance of $52 in May 2018. This triggered the breakout from the inverse head and shoulders pattern on the weekly chart. While the stock pulled back and went below $52 in July 2018, the stock remained bullish. After all, it printed a higher low setup of $44.47 in October 2018.
With a higher low in place, FL once again took out resistance of $52 and climbed as high as $58.67 this month. Now, the stock is facing resistance at the 200 moving average on the weekly chart. The expected pullback will likely send FL down to $52 and flip the resistance into support.
Fundamental Analysis of Foot Locker Inc (FL)
In addition to our technical analysis, fundamental analysis also backs our bullish view.
The third-quarter 2018 performance of Foot Locker Inc. beat analyst estimates. Analysts projected that FL will print sales of $1,846 million yet the company generated total sales of $1,860 million. Also, analysts projected earnings per share of 92 cents. However, the company came out with surprising quarterly earnings of 95 cents per share.
Lastly, the trailing twelve months price-to-earnings ratio (PE ratio TTM) of FL is 12.85. The stock is undervalued considering that the PE ratio TTM of the apparel and shoes industry is 14.42. On the surface, the difference might not be significant. However, if you take into account that the four-year maximum of FL is 19.13, then it becomes more apparent that the stock has more room to grow.
The strategy is to be patient and buy on dips as close to $52 as possible. As long as bulls hold this level, FL will likely generate the momentum to bounce to our target of $72. Take that out and the next target is $78.
The timeline for the target is more than six months.
Weekly FL Chart
As of this writing, the Foot Locker Inc stock (FL) is trading at $56.68.
Summary of Strategy
Buy: On dips as close to $52 as possible.
Targets: $72 and $78.
Stop: Close below $49.50.
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