Bought to open HNNMY

action

Bought 2,500 shares of Hennes & Mauritz (HNNMY) at $6.095. Total cost after commission was $15,245.45, or $6.10/share.

price target

First target is around $6.40, the support level of mid-January, which was also resistance during the past month. Assuming that the stock can recapture that level, soon, my next target level would be $7.70, the October 2015 peak.

stop loss

Even though H&M is one of the world’s biggest apparel retailer, since it is not officially listed in New York, its ADRs are somewhat illiquid, which makes them more volatile than I’d expect for a company of this size. ATR is 11.25¢. Adjusting this to a weekly measure (x sqrt(5)), I see 25&cent as a typical move. HNNMY closed at $6.11, so I will sell if the stock drops below $5.87 on a closing basis.

time frame/catalysts

As long as the stock doesn’t knock out the stop, I am willing to be patient. Quarterly sales updates were quite encouraging. A near-term catalyst could come from the August revenue metrics, to be reported on September 15, and from the earnings call on September 30th. The monthly sales growth number in particular offers a chance for a nice headline, since August 2015 was a rare month of lackluster performance for H&M (+1% sales growth).

rationale

Apparel retail has been struggling, obviously. Everyone who doesn’t live under a rock knows that the malls are dying, that there’s too much retail space in the US, that consumers are suddenly more interested in experiences” than in stuff”, and that the only retailer left standing in a few years, will be Amazon. Right. Whatever.

People will always need clothes. They want them to be fashionable, and not too expensive. H&M checks those boxes. Also, H&M’s store fleet is heavily weighted towards Europe, and not the US. In fact, H&M stores in Germany seem to have twice the average revenue as stores in the US. In addition, H&M has a big growth opportunity in Japan, where its online presence just went live.

August 30, 2016 at 6:29pm · HNNMY · buy to open · stock


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