AOG (Aveo Group) is in a strong monthly uptrend since June 2013. The increase from its All Time Low of $0.92 to recent high of $3.01 is a three bagger over this time. Question is how much more is in the current move.
There’s a few if’s and but’s, but to keep this simple let’s assume the $0.92 low in June 2013 was the end of the downturn (Wave C complete) and the stock is currently in a Wave 1. All stocks pretty much pick themselves up off the floor in the same basic pattern. After some years of going nowhere while management sorts out the business (4 years 2009 – 2013), the first move of Wave 1 typically exhausts itself and retraces normally 61.8% into Wave 2, before then going on to the strongest and longest Wave 3, which is when you want to be invested.
The price level for Wave 1 is not very predictable except by looking for likely price levels using a few different interpretations of these. I’ve marked the main likely levels for Wave 1 in dotted horizontal lines and light blue shading. My guess is probably the 100% extension (orange letters) at $3.40 is most likely on the chart alone, but the current high of $3.01 might also be it. Maximum run up at a stretch is pretty much $4.30 but I don’t think it will get that far.
I’ve marked the likely waves from these three reference levels which makes the chart a bit busy. But basically the start of Wave 3 is the optimum time to take a position. I wouldn’t think its worth trying to catch the last bit of the Wave 1 rise or then sit through the retrace. I’d go do something else and have another look in say the second half of calendar 2016. At this point it should be clear the pattern that’s formed, that it is a Wave 1-2 and it’s not just an oscillating basing pattern that goes on for years.
If you do want to go long now, then I’d at least wait for a weekly chart close above the most recent high of $3.01 to ensure it’s got further legs in it.
Fundamentals:
I don’t know much about the company, but as a retirement village operator that presumably got itself in trouble in the GFC with debt, then that takes a lot of time to work off given the basic yield play nature of the business. If it’s developing new centres then there’s long development timeframes on that. Unless it’s come into a lot of capital for a roll-up strategy of other villages which I doubt given the fall in share price that’s occurred, I’d expect a business like this to need a lot of time in terms of years to significantly expand its business.
I read something on the AOG HotCopper thread about it doing a share buyback capped at $2.77. That would explain the chart actually. A buyback in a thinly traded stock would support the price up the cap level along with early movers into the stock, which his basically the Wave 1 move described above. Once the buyback is complete the price could drift down into the Wave 2 I expect. So that would make a lot of sense. You need to explore that further.
Conclusion:
AOG’s had a good initial run, but I wouldn’t jump on now. I’d let the current run complete and have a significant pullback (nothing guaranteed in trading, but this is as likely as it gets) in the order of 61.8%, and then wait for it to confirm a move up again for optimal entry.
Come back after June 2016 and see how it’s tracking then.
(20min delay)
