For instance, I advised buying the Aim-traded shares of Tristel (TSTL: 70p), a maker of infection prevention, contamination control and hygiene products, on a number of occasions in the past five months having initiated coverage when the price was 60p. At the time I was targeting fair value in the range of 75p to 80p (‘Clean up on superbugs’, 6 May 2014). A month later that target was hit after the company issued yet another positive trading update and one that prompted a round of analyst earnings upgrades (‘Bug busting upgrades’, 10 June 2014). I remained positive and upgraded my target price to 90p, a level that was subsequently hit three weeks later. In turn that prompted profit taking by investors sitting on a 50 per cent share price gain in only eight weeks.
But it was my firm view that this pull back offered a repeat buying opportunity and I reiterated my buy advice at 77p at the start of August (‘Clean up with Tristel’, 4 August 2014). Tristel shares again hit my target price of 90p in early September and have succumbed to profit taking since then.
The point I am trying to make is that to judge the overall performance using Tristel’s latest share price is misleading as it ignores the fact that the price soared by 25 per cent on the initial buy advice, and a further 17 per cent on the two subsequent occasions I reiterated my buy recommendations. Ultimately, it’s the call of an investor following my advice whether to bank profits when a share hits my target price, or alternatively to run profits. Equally, it’s my decision when to reiterate my advice if the price has hit my target and subsequently succumbed to profit taking.
Repeat buying opportunity
And that’s exactly what I am going to do now. That’s because with Tristel’s shares are currently trading on a bid-offer spread of 69p to 70p, the share price has pulled back to test the July low of 65p and with the 14-day relative strength indicator (RSI) massively oversold (reading of 20), there is obvious scope for a major bounce. Moreover, the price has pulled back to its 200-day moving average, a successful test of which should be seen as an ideal buying opportunity in bull markets. And that’s what I can envisage happening as Tristel is due to issue a robust set of results on Monday, 13 October, and ones that will be very supportive of the investment case.
It’s worth flagging up too that with newsflow from the busy corporate reporting season tailing off by then, I expect the eye-catching sales and profit performance to grab wider media attention that normally would be the case. It would pay to buy in before then because with pre-tax profits set to almost quadruple to £1.8m in the financial year to end June 2014, driven by a 27 per cent rise in revenues to £13.5m, and the payout forecast to quadruple to 1.6p a share, I see a rating of only 13 times fiscal 2015 cash adjusted earnings estimates a bargain entry point. Expect others to do so too.
So with the technical set-up favourable, and the fundamental case of investing unchanged since my last update in early August, I view Tristel’s share price pull back as strong buying opportunity to exploit. If the shares can overcome the technical resistance at the 80p level, a revisit to the 90p highs looks firmly on the cards. Either way, Tristel shares rate a strong buy. Please note that I have analysed in quite some detail the key factors driving Tristel’s earnings upgrade cycle in my earlier articles.
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.75 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stock-picking'
