What to do with D&O (7204)

Hi Readers,

There were asks recently on D&O (7204) from my friends and the questions are from two different perspectives as summarized below. Hence, I will generalized it as what to do with D&O?

1. Friends who has initiated stop loss previously at $0.635:
• Can I re-enter again as recently seems to be active?
2. Friends who has been holding for its fundamentals and continued buying until recently:
• Should I take profit and wait for opportunity to buy again?
3. Friends who called seeking opinions to buy at $0.50 to $0.525:
• Should I take profit? 

In previous posting back in Apr'19, I have shared my opinions with regards to sustainable growth stocks - one that has constant increase in sales growth outpacing profit growth, one that continues to re-invest its earnings. Such stocks will eventually perform better than the unsustainable growth stocks. Let's look at the fundamentals perspective on whether are we seeing a continuous growth or stagnant growth. I have extracted the recent quarter report and details with regards to its sales/revenue as shown in Image 1. Additionally, I have also extracted the summary of its financial performance from klse.i3investor web page which is nicely laid out in the table form as shown in Image 2. 

Image 1: Extracted from recent quarter report highlighting revenue growth

Image 2: Extracted from klse.i3investor web page

Looking at both the image, one can conclude that despite the fact that automotive industry is facing slowdown worldwide starting in 2018 and going into 2019, D&O revenue for automotive (main focus) is still going up by 4.3% for the 1st half of 2019 compared to 1st half of 2018. What it meant here is that D&O is winning market segment share; especially in Europe market as shown in Image 1. Based on the results, I am in the opinion that it is still growing healthily despite the external headwinds. Additionally, if you look at Image 2, you will noticed that Q3 and Q4 tends to be a stronger quarter for D&O. If you are following OSRAM's development, similar seasonality is being observed. Hence, it will be interesting to observe the next two quarter's earnings report. Longer term, the trends of electric cars and LEDs will continue to grow. 

Technically, indeed there is an increase in activities recently for D&O as shown in Image 3. It first attempted breakout from its year long downtrend line in July and challenged its resistance at $0.635. Two attempts were made to breakaway from the resistance line and in both attempts, a long legged doji formed which signifies indecision and potential reversal. Indeed it came down again but supported by the previous downtrend line. 

Image 3: Price actions for D&O

It stayed at $0.49/$0.495 for a short period and started moving up strongly beginning Sep'19. At this point some of you called on whether can get in and my response was yes. What is developing right now is the price actions is in a sideway consolidation mode. The same resistance of $0.635 will be attempted again in near future in my opinion. The volume has been increasing recently and I am in the opinion that there could be some funds/institution that may have initiated position or increase its holdings. Most funds/institution prefers growth stocks at a bargain.

Combining both the fundamentals and technical development, below are the possible options to answer the question of what to do with D&O:

1. Holding D&O as growth stock (long term)
• Keep your average near $0.50 cents by locking in some of the profits at $0.635 +/- 3%.
• Observe the development in the automotive industry and its upcoming Q3 report. If the growth remains, you can still add on more positions gradually whenever it consolidates. 
2. Holding D&O as trading stock (short term)
• Observe the development near its resistance at $0.635. If you are happy with the gains on hand currently, you can consider to sell it currently or near its resistance.
• Once sold, you can observe its technical development, if $0.635 becoming a new support, you can get in again. If it started going down, you can initiate position at $0.50 to $0.55 range.
• If it is able to breakout above $0.635, there is a possibility that traders are placing bet that its Q3 and Q4 earnings will be better than Q1 and Q2. 

Good luck and all the best!!!

Disclosure: The information above is for sharing purposes without any understanding of investment targets and needs of readers. References to the fundamental data and price movements is informational based on my analysis and data obtained from sources believed to be reliable at the point of writing. Please do your own due diligence before initiating a position as this article is not a recommendation to buy/sell.