Fast-food chain Jack In The Box (JACK) has sketched a three-weeks-tight pattern with a potential buy point at 36.89.
The small-cap stock would have to clear that entry in volume at least 40% above average to validate the buy point.
Jack cleared a 28.12 buy point in a cup-with-handle pattern in mid-December. The stock is now 29% above the buy point.
While many disciplined investors will take profits at the 20% to 25% level, some might be willing to hold through a base building because of the base count.
The December breakout was out of a first-stage base, so the next base will be second stage.
A base is a rest period, or consolidating area, during a stock's overall uptrend. Research shows that the first two bases are more likely to work than later-stage bases.
Jack's fundamentals are somewhat spotty. Annual EPS growth was 9% last fiscal year after two down years. The Street expects EPS to grow 10% in fiscal 2013 ending in September and then 25% in fiscal 2014.
Pretax margin was 6.4% in fiscal 2012. In the hamburger wars, that's higher than Wendy's (WEN) but lower than McDonald's (MCD), Burger King Worldwide (BKW) and Sonic (SONC).
Revenue has fallen four years in a row at Jack. The Street expects a 0.5% sales gain this year and 4% the following year.
Why is the stock price rising as revenue declines?
Lower sales are the result of Jack's ongoing refranchising strategy. The company is reducing the number of company-owned stores by refranchising the units.
The franchising business model is less capital intensive and generally provides higher margins.
Jack has more than 2,250 restaurants with 76% franchised and 627 Qdoba Mexican Grill units, with 50% franchised.
Source: http://news.investors.com/investing-stock-spotlight/050213-654466-jack-in-box-stock-pattern.htm
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