PLCE: Turn Around StoryOpportunistic pick up to add to position. Market is reading too much in a CFO swap.
Fundamentals
+ Business is turning around (toward profitability)
- Unclear whether new management's plan will pan out due to a highly elastic customer (losing a significant amount of customers for marginal improvements in margin)
+ Last quarter weaker than usual due to a shift forward in the start of the school year (school spending started later) - will support earnings for next quarter
+ Cheap (esp as major input prices continue to shrink and get reflected in the income statement), expect to see margin improvement; but also a risk if we see barriers to trade go up next year from the president elect
Technical
+ Finding support around 10.75-11.25 (great place to add)
+ Primary holder holding most the shares showing limited availability of liquidity
+ Feel of the chart suggests most existing holders are finding value - moves are exaggerated to the downside because of liquidity but are quickly getting picked up (see last dip on bad earnings); downside moves are look fast and exaggerated because any seller has to sweep through the market to source liquidity. Buyers respond in kind by offering liquidity (picking up shares via limit orders and gradually moving up).
+ Options are extremely rich so puts more pressure on the underlying shares to source liquidity (options too expensive to carry long or short).
+ Price is consolidating, resembles flag-esque pricing action; and very different than prior moves which saw upward thrusts before a move lower.
Targeting: short term target 16 as the base case (top of flag) or highs 20s to reflect current fundamental value (potentially higher if margin returns and top line stabilizes).
