Why SuperValu (SVU) Stock Won’t Stop Falling

Advertisement

Supervalu Inc. (NYSE:SVU) stock had a rough go of it on Tuesday, losing more than 10% after its first-quarter earnings results didn’t quite live up to expectations.

Why SuperValu inc SVU Stock Wont Stop Falling

The only odd thing: the Eden Prairie, Minnesota-based wholesale grocery chain didn’t even have a terrible quarter. SVU earnings per share came in at 24 cents, trumping the 21-cent estimate. Same-store sales, the holy metric in retail, accelerated to 3.6%, more than triple the 1.1% growth Supervalu saw just a year ago.

That said — and as you can probably tell by the SVU stock price — the report wasn’t all butterflies and rainbows, either.

SVU Revenue Miss

Supervalu made the fatal mistake of exceeding Wall Street earnings expectations and missing on revenue. SVU reported revenue of $4.36 billion in the  first quarter, $30 million less than the $4.39 billion analysts wanted. Groceries are a low-margin business, and the thought is that if you can’t improve your margins too substantially, you’d better be posting some solid revenue growth.

That obsession with the top-line is typical of today’s stock market environment. Consider Chipotle Mexican Grill, Inc. (NYSE:CMG), which beat easily on EPS in its first quarter ($3.88 versus consensus $3.66), but was slightly off on revenues ($1.09 billion versus $1.11 billion). CMG stock took a 5% haircut immediately following the results.

Although not a member of the services sector like SVU and CMG, Twitter Inc (NYSE:TWTR) also experienced the wrath of Wall Street when it missed on revenues Tuesday, despite beating on EPS. Investors recoiled at the $436 million in revenue TWTR saw last quarter, expecting $456 million. The fact that non-GAAP EPS of 7 cents nearly doubled the 4-cent estimates didn’t seem to matter.

So, missing on revenues didn’t do much to help SVU stock yesterday. But what about today? Why is it off another 7%?

SVU Technicals

Unfortunately for SVU stockholders, fundamentals aren’t the only thing behind Supervalu stock’s two-day freefall. Today technical traders got in on the action, and in a major way. Despite no additional business-related news being released on Wednesday, SVU shares were doomed from the ring of the opening bell.

The chart below helps to show us why:

svu
Source: Stockcharts

The purple line is the SVU stock’s 50-day moving average, which SVU most recently breached on Monday — a bearish technical indicator implying further downside. But the real kicker came in after-hours trading on Tuesday, when SVU stock fell below its 200-day moving average of $9.67. That’s a longer-term bearish indicator, and a rather important one as far as chartists are concerned.

Despite closing at $9.89 yesterday, Supervalu stock opened at $9.19 this morning, as the after-hours freefall had already occurred.

On the bright side of things, this chart looks rather bullish for a contrarian trader, who might note that the ridiculously low RSI reading of 17 puts SVU stock in oversold territory.

While personally I think that Supervalu’s revenue miss might as well be a rounding error, and while I would rather have a go at the roullette wheel than invest my money on the merits of zigs and zags, there’s billions of dollars out there that disagree with me. You can clearly see them staking their position in the above chart. It’s called a “race to the exit” pattern.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/why-supervalu-svu-stock-wont-stop-falling/.

©2024 InvestorPlace Media, LLC