Wellard Limited – Is This Beaten Down Stock Now Emerging To Be A Technically Healthy One?

Wellard Limited (ASX:WLD) is one of the many stocks listed on the ASX which has disappointed investors since its listing in terms of equity return. The stock listed on ASX at a price of A$1.363 back in December 2015, and since then has only seen steep falls in prices. In other words, the stock has faced a typical bear market for years which hammered the stock down to A$0.052, a decline by a significant figure (as of 01 March 2019). The decline was also backed by consistent weak performance by the company throughout the year.

On 14th February 2019, the company had posted its first after-tax profit since listing which came as a surprise to the investors. The company reported a net profit after tax (NPAT) of $2.9 million in 1HFY19 compared to the previously reported loss of $7.4 million in 1HFY18. The overall performance of the company was well above expectations as revenue at $188.2 million, gross profit of $35.9 million, cash and cash equivalents at $13.4 million and net assets of $108.9 million, all were up from the last year.

This stunning result was taken highly positively by the investors, and the stock price opened with a gap up and closed more than 25% up at A$0.057 the same day, compared to the previous closing of A$0.045. Interestingly this surge in buying was also accompanied by a huge volume of more than 2.4 million, coming in a single day. On the other hand and few days before the result release, the group was addressing few concerns that erupted at the back of a media article.

If the broader view is taken in consideration, the stock price has fallen so much over the past few years that more downside from here seems to be limited especially after the first ray of hope that’s been given by the company this time.

What’s more interesting is, the stock has also formed a confluence to different bullish patterns on the price chart at the same time. On the weekly chart, the stock has formed a rare “falling wedge” pattern wherein the stock falls continuously in a trend and bounces off between the two falling trendlines (upper trendline which acts as resistance and lower trendline which acts as a support) as shown in the chart below. After reaching a significant bottom, the price tries to break above the upper trendline in order to finish the downtrend and start a new uptrend, which still does not come as a steady pattern. As clearly seen, the price has given a breakout above the upper trendline amid the strong results which huge volume, and a new positive trend may emerge from hereon while this tethers on the speculative note.

Daily Chart of WLD (Source: Thomson Reuters)

In the shorter time frame, the stock has formed what is called “Double bottom” price pattern. It forms after a significant downtrend wherein the price makes a bottom which was formed around $A0.04 and then rises to a level from where the selling takes place that throws the stock to the same previous level from where it had given the rise, but fails to drop further because of increased buying coming in around those levels. This helps the stock to rise again. This subsequent rise is generally strong enough to breach the previously formed resistance, and a breakout emerges.

These two breakouts are noted in the technical chart and the pattern lately got the support from 1HFY19 numbers; and the price may see an emergence of a new positive trend. The price has retraced from upper levels to A$0.052 lately, which might be giving another opportunity to participate in this new emerging trend. Nonetheless, investors are still cautious of the stock that has fallen about 64% in the last one year, as at March 01, 2019, while the company has to manage its costs as indicated in the outlook for the full year.

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