Market’s resilience and fragility

Last week, I said the market could be at some inflection point where, depending largely on market developments abroad, it could be coaxed to break down and head south to lower lows or break out and head north to further highs at week’s end.

While the market slipped to 6,811.33 and ended with a weekly loss of 6.38 points or 0.09 percent, it remained within its support level. On hindsight, trading proceeded to a full circle, again, similar to what happened the week before.

It opened slightly higher on Monday at 6,818.16 and hit the session’s high of 6,908.59 on Tuesday to defy the 6,900 resistance level.  But, the market failed to hold on that it closed lower at 6,882.73. This was followed by a deep fall on Wednesday when the market closed precariously below the support level at 6,762.38, ending with a day’s loss of 120.35 points or 1.75 percent.

Looking back, the attempt to challenge the market’s immediate resistance was not good enough. Come to think of it, it was only 1.96 points more than the market’s attempt the week before, following its ascent to the session’s high of 6,906.63. Apparently, the market needed more value turnover than what it had during the week to meet volume of shares that were likely to be sold for profit-taking or just to plainly stay safe as the market stayed weak and unstable. Such was the market’s performance last week, showing its continuing resiliency and, at the same time, apparent fragility.

Other commentaries

Analysts and market insiders are divided on the condition of the market. Some high-profile local market analysts had issued public statements expressing fear of an imminent market breakdown, aping the personal pronouncements of foreign doomsday analysts and insiders. Like their foreign counterpart, what was worrisome to most of them was the market’s overbought situation. They claim the market had become overpriced and way too expensive, in general.

Checking out the prices of some market favorites in the last two weeks verifies such claims. Hugging the limelight in the price leader board is Double Dragon Properties Inc. (DD). It debuted last April 7 as a real estate development services firm focused on commercial, residential and public-private projects. At its closing price of P9.85 last Friday, it has gone up 393 percent above its offer price of P2 a piece. As per the PSE website, too, DD traded at the price-earnings ratio (PER) of 205.94x based on its last traded price of P9.85 a share. At this price, it had a price-to-book value (PBV) of 37.23x.

Another company is 8990 Holdings Inc., the low-cost or mass-housing developer that listed on the local bourse through a backdoor acquisition of IP Converge Data Center and now trades with the trading symbol HOUSE. It also launched a fund-raising follow-on offering (FOO) early this month at the offer price of P6.50 and raised P9 billion, of which P2.2 billion was for the acquisition of a 13-hectare property in Pasig City. At its reported traded price of P6.60 a share last Friday, it was trading at the PER of 98.83x and at the PBV of 5.59x.

Speaking of the IP group of companies, another subsidiary, IP E-Games Ventures Inc.–maybe a target of another back-door listing– burst to active trading last week, too. Despite reporting an operating loss, as per the PSE website, its stock price of P0.014 a share last Friday had risen by as much as 7.69 percent in the last one week.

As a last example of a stock deemed overvalued at the moment is Jollibee Foods Corp. (JFC). At its stock price, JFC is reportedly trading at a PER of 44.73x and on a PBV of 8.88x. Worth mentioning, too, is Central Azucarera de Tarlac Inc. (CAT). Though reportedly trading at the acceptable PER of 17.87x at its traded price of P79.90 a share last Friday, it is considered too much as its stock price has risen 33.28 percent in the last week and 59.48 percent in the last four weeks.

Another is Bright Kindle Resources and Investments Inc. (BKR). It was reportedly taken over by the Romualdez family for their mining asset holdings. It had been making sporadic bursts of trading activity for quite some time now. At its traded price of P2.80 last Friday, it is trading at the PER of 33.79x and PBV of 4.24.

Bottom line spin

It is true the market may be trading at the higher end of its general price band as most actively traded stocks are already at their 52-week highs. But considering the submitted first-quarter operating results, price multiples will likely go down, as most reported good earnings at the same time robust prospects.

The writer is a licensed stockbroker of Eagle Equities, Inc..  You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com