There seems to be a short to medium term sell off in Kingfisher (KGF) shares developing. I’m writing this after market close on Monday where the company managed to close marginally up, but the share price has been registering some bigger drops over the last week.
Share price data shows a 52 week high in the stock was hit 9 May at 389.67 and investors have seen a solid gain from the stock over the winter months. You could have got in at the end of July at just under 200. The share also does not look too expensive, compared with some other sectors which are simply too hot to handle right now.
Substantial drops in the Kingfisher share price
From a purely technical perspective, we have seen a couple of big drops in price since the start of this month and far more sellers than buyers which is setting Kingfisher up for some more selling activity going deeper into the month.
We also like to kick the tires on where fund managers are sitting with a stock and sentiment is not looking good for Kingfisher. Data from AI specialist Irithmics, which tracks the behaviour of thousands of fund managers and pension funds around the world, shows negative bias from both long term and short term institutional holders of Kingfisher. Appetite for the share is well down indicating that we are unlikely to see larger shareholders lining up behind the stock anytime soon and there isn’t enough retail love right now to support it.
There has not been much change in this sentiment in the last two weeks as we have been watching. Most concerning for shareholders is that the market is primed for further bad news coming out of the company soon. This all amounts to the ingredients for a short position over the next few weeks.
Solid Q1 numbers from Kingfisher were not good enough
This is probably frustrating news for Kingfisher management. It seems as if the company’s fiscal first quarter trading statement was just not good enough to keep big investors happy. This is despite like for like sales being up 64% year on year (constant currency basis). This is a much better performance than in, say, Q1 2019, well before the pandemic. E-commerce and Kingfisher online sales are also motoring and adjusted pre-tax profit is expected to be ahead of previous board expectations. So what’s the problem?
Kingfisher even launched Screwfix as a pure-play online retailer in France in late April, which is a sound move as much of France was in lockdown in Q1.
We always consider a stock’s merits as a Short of the Week on short term price activity with scope for keeping that short on over the medium term. We have seen some impressive drops in the price in recent days in the wake of these results. The position of the fund management community leads us to expect that either they feel Kingfisher has given all it is going to give over the short term, or alternatively there is grounds for sensitivity around news – either bad news, or indeed a lack of good news in the future. There has been a substantial change in posture since that last set of results.
Kingfisher shares have had a good run in the last six months, and those funds who are back in Kingfisher shares for the long haul are already there, while the tactical traders seem to have digested the results and are now leaving, setting up potential for further downside trading. One to watch.