Throughout the pandemic months of 2020, the Reject Shop Ltd [ASX:TRS] proved itself to be the quite achiever.
Gaining over 250% in its share price since the low in March, the company made hay while the sun shone throughout the COVID-19 crisis — but it now looks like it may be tapped out at $7.58, at time of writing.
What’s happening over at The Reject Shop?
With 365 locations around the nation, the company is definitely well known.
Sure, it may not have the sparkle of other retailers like Myer Holdings Ltd [ASX:MYR] or JB Hi-Fi Ltd [ASX:JBH].
Yet throughout the course of the pandemic The Reject Shop outgrew them both!
- JB Hi-Fi Ltd [ASX:JBH] = 126.31%
- Myer Holdings Ltd [ASX:MYR] = 189.15%
- Reject Shop Ltd [ASX:TRS] = 254.17%
Couple this with FY20 sales of $820.6 million, a strong balance sheet with $92.5 million cash and no drawn debt, it’s easy to say the company has banked a pretty decent year so far.
They did this by pivoting towards the more consumable products people would need in a pandemic and even having a line of goods from Tesco in the UK. I imagine this would be a welcome taste of home for those from the UK stuck in lockdown.
Where to from here for The Reject Shop?
After the solid rise in the share price hit a peak of $8.50 in mid-July, it has really just moved sideways and into the formation of a flag pennant pattern, as you can see in the chart below.
What tends to happen with flag pennants is that a bit of a vacuum can form at the end of the flag.
As the bars get shorter and the volume declines into the pattern, it gets closer to either the buyers or sellers taking control of the next move.
Once the share price pops out of the pattern it can move quickly at times.
In the case of The Reject Shop, the share price moved up to the level of $8.15, which was strong enough to turn the move back. For the share price to be considered bullish once more, it would have to move up beyond this level.
The downside being that spending in retail looks to be slowing down, illustrated by the growth in household savings this year.
The Reject Shop might be a little immune to this due to the nature of goods they sell, but you never know. It can pay to be cautious.
If the share price were to fall back the then levels of $6.60, $5.80, and $4.80 may be enough to halt a fall.
As you can see from the chart above, when the share price does fall in this stock, it tends to fall away very quickly.
For The Daily Reckoning Australia