Since mid-November, Shutterfly, Inc. (NASDAQ:SFLY) has been on one impressive rally. Its move from $40 to $53 has been good for a 32.5% rally. Even though most stocks have been hot over the past few weeks, SFLY stock has been incredibly impressive. However, some warning signs are flashing.
Most of those signs are on the chart, so let’s take a look.
SFLY stock is consolidating nicely near $53. That makes me feel like maybe there’s a chance it can charge higher. With the company set to report earnings on Jan. 30, the results and its guidance better be amazing. Using a five-year weekly chart, we can see this $52 to $54 area has been very stiff resistance over the past few years. If SFLY stock can push through, it could be a massive, massive breakout.
If Shutterfly stock fails to break out, significant support looks to be a long ways away. Looking at a short-term chart, support should come into play in the upper-$40s. In this range, we have both the 50-day and 200-day moving averages. Second, we have the prior downside resistance (purple line). This level will hopefully act as support should SFLY stock correct to these levels.
Ultimate support sits between $35 and $40. Should a pullback to $47 materialize, it will mark a decline of about $12.
Valuing Shutterfly Stock
Boasting a market cap of just $1.75 billion, SFLY stock is no Facebook Inc (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT) or Amazon.com, Inc. (NASDAQ:AMZN). However, that doesn’t mean it’s not worth evaluating.
The company is not set to have a robust 2017. Analysts are looking for earnings to fall 3 cents per share to 42 cents for the year. That’s a 6.6% decline to go along with revenue growth of just 1.5%. The company disappointed investors big-time in October, when shares plunged from $50 to $40.
As we pointed out just a minute ago, $35 to $40 would be a great level to buy SFLY stock. However, the company would need to report a big-time disappointment to force Shutterfly stock to these levels. Qualm your concerns though, as 2018 is set to be a far better year. Analysts expect earnings of $1.46 per share — growth of almost 250%! Sales are expected to grow about 5.1%. While this growth isn’t massive, consider that it’s more than triple 2017’s sale growth.
Admittedly, I am not in love with Shutterfly’s business. But just because we don’t care to speculate on Shutterfly stock over the next five to ten years, doesn’t mean we can’t trade it in the meantime.
So while SFLY stock trades at about 125 times 2017 earnings, it trades at just 35 times 2018 results. That’s a far more reasonable valuation. Alongside massive earnings growth and an uptick in revenue growth, investors could be drawn to the name this year. Particularly if it can break through this heavy line of resistance.
The Bottom Line on SFLY Stock
I feel surprisingly positive about Shutterfly stock. However, I am not willing to take on the risk of merely hoping it pushes through resistance. That’s akin to gambling, a move I don’t prefer to make. If and when SFLY stock pushes through $54 to $55, I’ll be a buyer. Although we would miss out on some gains, it’s a far more lucrative strategy.
Why? Because the risk-reward will be so favorable. If SFLY pushes through resistance, then we can use that prior level as a new level of support. Should it hold as support, we can use a modest close below this area as a stop-loss.
This will effectively limit our losses to a small percent, while allowing SFLY stock to target its prior highs near $60 and possibly new highs above that.
Let’s see how the stock shakes out after it reports earnings.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
