Should You Step into Foot Locker?

With the NBA and other sport seasons flaring up this autumn, you may be wondering if now is the perfect opportunity to purchase shares of Foot Locker (FL), especially since they will be releasing earnings shortly (November 19, 2006). While such may be said as a good deduction, there are other, more profound reasons and answers to this question which, may, unfortunately, delay or even abort your decision to carry on your purchasing intentions. While all the economic and fundamental analysis may signal a strong run for this company, the technical analysis side of these indicators weighs much more heavily in a stock like Foot Locker.

To put such sentiments into more rudimentary terms, since its IPO days in the early 1970s, Foot Locker has provided evidence to the public that such is a hard to assess equity. It’s true up to 1990, Foot Locker posted pretty solid gains, but after that decade began, it seems that Foot Locker has struggled tremendously to surpass its identified resistance level of about 30 dollars in terms of share price. The good news however, is that Foot Locker also has very rarely fallen below its now identified support level of about 20 dollars. While such level may be a positive indicator for a large cap stock for a year or two, in the case of close to 16 years, it is time to realize that Foot Locker has hit its maximum and will continue to have a hard time surpassing 30 dollars anytime soon. In fact, over the last few years Foot Locker had an immense opportunity to confront this heinous 10 point position. Since Foot Locker, as described by Yahoo Finance, sells merchandise in the form of apparel and athletic shoes, which are luxury goods and should flourish under the previous economic duration, the share price, if understanding fundamentals, should have rose to new record levels, but instead the price of a share actually fell or nearly broke even during this time span. Such has led me to come to the conclusion that now, especially since the American economy is slowing, going into a recession, purchasing shares would be a waste of both capital and time to invest in a company like Foot Locker.

However, if for some reason, you have an aching or contain some desire to purchase shares of this company, but only for the short term, there may be some good news. Since Foot Locker has recently reported pretty solid fundamental results in terms of revenue and operational income growth which is supported with a strong P/E ratio, there may be a chance in the next two months to make some money. Since Foot Locker should typically do well when consumers are both confident and employed, fundamentals for this consumer based company, especially during this time of the year should be at its strongest. If such is the case, then there is a possibility over the next few months to earn a nice 10-20% if everything plans out well, as Foot Locker is near the support level of its position rather than resistance. However, if you plan to keep your shares any longer than that (Around April 2007), be warned that there is a good possibility that most of your capital gains that you would have accumulated over that span will probably diminish, if not go into negative territory.

Thus, while there is a small chance of profit from investing in Foot Locker over the course of the next few months, if I were you I would rather put my money in more results-proven equities or be sure to take my shares out once I’d made around 10-20%. As a long term investor, I definitely would stay away from this stock as more than 16 years is absolutely too long for any equity to stay in just one position.



Source by Dennis B



Add a comment