Over the past month, shares of Empire Company Limited (TSX:EMP.A) have had an excellent run, closing up in excess of 20% for the month of March alone. On a year-to-date basis, shares have risen almost 30%. The good news is, of course, the profits made by existing investors who were fortunate enough to see shares appreciate in value in addition to receiving a dividend.
While investors may think there is no point in jumping into an already hot stock, the truth is, the bulls may still have far to run yet. As we know, the company obtains a significant amount of revenues from western Canada, which has been in recession as of late. To boot, many workers have left the province for jobs elsewhere. If the company can get just a few things going in the right direction, there is major potential for still a large increase in the share price.
With a new CEO at the helm, investors are finally beginning to see sales per quarter on a year-over-basis begin to stabilize, and the market is finally starting to read into this. With a stabilization in sales and earnings per share which are enough to sustain both the dividend and capital expenditures, investors have finally seen the obvious: the bull has a long way to run. Profits will rebound, and the dividend is safe.
Although shares have already increased by more than 20%, we invest based on the future and not based on the past. It took a long time to reach the bottom, but the turnaround in the stock’s price will not take as long. Instead, investors will be quick to realize the potential and see safety in this defensive security as the technical indicators begin to show a clear bottom is behind us.
Currently, the simple moving averages (SMAs) are telling investors the stock is back in vogue and ready to deliver again. The 10-day SMA has increased, crossing the 50-day and 200-day SMAs, confirm the breakout. The best part of this move is watching the stock price clear the $20 price tag, which acts as a psychological barrier for many investors.
As the security has closed above $20 for several days now, the $20 price may become the new support level as the SMAs can gap up to the number in a reasonable time frame. With every passing week, the $20 floor will make it more difficult to break under.
The downside to a higher share price is the lower dividend yield. Shares currently offer investors only about 2%, so those seeking yield may have to cross this name off their lists; grocery retailers are not known for high dividend yields. The approach to investing in grocery stores is for the defensive nature of the investment, not for huge dividends.
