Why the Metcash Limited Share Price Rose Today

What Happened to the Metcash Share Price?

Metcash Limited [ASX:MTS] is a wholesale distribution and marketing company. They focus on grocery, fresh food, liquor, hardware and automotive parts and accessories. Metcash operates in Australia with a small liquor business in New Zealand.

The share price closed 3.50% higher today.

Why Did This Happen to Metcash Shares?

The stock was due for a rebound. Metcash shares are down 12.6% for the year to date. The 75 point gain in the S&P/ASX200 helped pulled the stock higher today.

What Now For Metcash Limited?

Don’t be fooled by today’s gain. The stock hasn’t turned around yet.

ASIC says Myer [ASX:MYR] is the most short sold stock at present. Myer accounts for 16% of all short sold stock. The other two retailers in the top 10 are JB Hi Fi [ASX:JBH] making up 13% of all shorts held and Metcash 11% of shorts.

This pessimism comes from two places.

Their first half results — the period ended at 31 Oct — showed underlying profit falling by 9%.

Less than a month later, all the big research firms downgraded Metcash’s price target.

JP Morgan has the lowest price of $1.97 and Citi are the top at $2.90. Macquarie, CIMB and UBS have a price target of $2.38, $2.40 and $2.50 respectively.

Let’s be honest, that’s a wide range for a stock trading around $1.60. Truthfully, it gives you very little guidance on what the share price will do.

Metcash is half way through turning around the business. And we could be talking up the company by the middle of the year. Full year earnings before tax and interest is estimated to be between $315 – $330 million. Very similar to last year.

However, if the company does achieve this, along with minimal growth, it may be a sign the business is turning around.

The share price is currently trading at levels not seen since early 2002.

The stock has lost 38% since November 28. Don’t be suckered into buying the just because it looks cheap. It’s priced like this for a reason.

Shae Smith
Editor, Money Weekend

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Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

Money Morning Australia