Shoprite's mayhem! - Why I expect the share price to drop another 37%

by , 03 September 2018
Shoprite's mayhem! - Why I expect the share price to drop another 37%
For the first time in 19 years, Africa's biggest grocer (Shoprite) reported its first annual earnings decline.

With the Listeria outbreak, the higher fuel prices, the increased VAT, the ongoing strikes, 489 armed robberies and the ever-weakening rand this decline was inevitable.
Even Chief Executive Pieter Engelbrecht mentioned “the toughest (year) that I can recall”.
 
In terms of the market view, not only have they cut dividends, we’ve also seen the share price drop over 24% in the last few months from R277.50 down to R210.
 
Let’s examine the chart to see how much further Shoprite can drop.
 
Shop till you drop 37% 
 
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Since 2015, Shoprite has been on a sharp uptrend.
 
From R127.50 up to R277.50 in December 2017, we saw the share fly to an all-time high. Just a few months later, we saw the share crash down to R232.50. 
 
When I see a sharp fall like that, I expect the share to drop even further as panic floods the market.
 
And fall it did. In fact, it broke out of its four-year uptrend which has now entered into a bear market (Downtrend).
 
So where can we expect the Shoprite share to drop?
 
To calculate the next target for Shoprite you’ll use the High-Low approach.
 
Basically, you’ll take the most recent high price of Shoprite, which is at around R278 and strongest most current low, at around R205.00, to find the target.
 
Here is the calculation.
 
High-low target =  Low – (High – low)
                         =  R205 – (R278 – R205)
                         = R132.00
 
This means, we can expect Shoprite’s next target to drop to R132.00 which is a 37% move from here.
 
Here’s the chart again so you can see how the High-Low approach works visually.

 
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It’s always easier to see the charts and understand the logic behind the calculations.
 
This is why Shoprite has a high chance of falling down to R132 from its current level. 
 
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Shoprite's mayhem! - Why I expect the share price to drop another 37%
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