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Market Measures: An AI Take

I mentioned Market Measures (MM) in the last post. Before going into details about particular episodes, I want to provide an overview of what MM is.

In this day and age, I feel the necessity to get familiar with and lean on AI. To that end, I have asked Perplexity to help us out:

     MM is a segment on tastylive that focuses on advanced trading mechanics and analysis.
     It aims to provide traders with in-depth insights into various aspects of the
     market, regardless of their experience level. The show covers a wide range of
     topics, including:
     
         1. Options probabilities and volatility
     
         2. Trading strategies for options and futures
     
         3. Analysis of market behavior and trends
     
     Recent episodes of MM have explored:
     
         1. Exit times and profit targets for zero-DTE options
     
         2. Optimal profit targets for different delta strangles and 45 DTE trades
     
         3. Intraday market behavior analysis, including volume patterns and index movements
     
     The segment uses data-driven approaches to examine trading mechanics, helping viewers
     build strategies to manage more winning trades. By delving into complex market
     dynamics, MM equips traders with the knowledge to make informed decisions and
     refine their trading techniques.

Google Generative AI gives us:

     MM by Tastytrade, hosted on platforms like Tastytrade, analyzes market volatility,
     reversal probabilities, and trading strategies, offering insights for traders to
     improve their decision-making.
     
     MM delves into various aspects of market analysis, including:
     
          1. Volatility and Reversal Probabilities: Analyzing market swings and predicting
              potential reversals.
     
          2. Trading Strategies: Exploring different approaches to trading, including options,
              futures, and more.
     
          3. Market Dynamics: Understanding the underlying forces and structures that drive
              market behavior.
     
     Key Concepts:
     
     Market Profile Analysis: A method of analyzing market data to identify value areas,
     price rejection points, and the strength of buyers and sellers.
     
     Contrarian Trading: Strategies that capitalize on market reversals after
     significant moves.
     
     Examples:
     
     “How Long Does Market Chaos Last?”: An episode that examines the duration of market
     volatility.
     
     “Since 1994: Market Reversal Data Revealed”: An episode that analyzes historical
     market data to identify patterns of reversal.
     
     Benefits for Traders:
     
     Improved Decision-Making: By understanding market dynamics and potential risks,
     traders can make more informed decisions.
     
     Enhanced Trading Strategies: The show provides insights into various trading
     strategies and techniques.
     
     Risk Management: Learning about volatility and reversal probabilities can help
     traders manage their risk effectively.

Besides never seeing anything on Market Profile Analysis, I think this to be a solid overview.

The segment generally lasts 10-20 minutes and is produced ~4 times per week. Most present a Research Team study that has taken tens of man-hours to complete. Segments are generally hosted by Tom Sosnoff and Tony Battista. Members of the Research Team occasionally make appearances to provide added technical expertise. Tom Preston also makes an occasional appearance. These folks represent a tremendous amount of floor trading, data science, and option modeling experience.

All MM episodes are archived on the tastytrade website along with slides for each segment.

Next time, I will pick up in mid-2019 with a deeper look at particular segments.

Getting Off the Schneid (Part 2)

The current title pays homage to this post. Today I recap 2024 efforts, what I have done since, and where I hope to go next.

Although you may not have noticed (as explained here), I am about five months behind in blogging. A quick count reveals that I did 123 stock studies in 2024 all posted here. My last study was in November (actually October).

Since then, I suppose my brain has been recharging?

All I know is that I’m overdue for more stock studies [updates] and delinquent in regular maintenance of my personal stock portfolio. I can’t blame the library’s technical difficulties for putting a halt to my 2024 stock studies. Part of the excuse would be the more difficult endeavor of finding new stocks with bullish prospects at reasonable prices when the market is at all-time highs (ATH).

The market is now in correction and I’m caught with my pants down while some good buys are definitely available. Kudos to me for not exhibiting herd behavior and buying stocks hand over fist with the market at ATH or falling prey to FOMO (fear of missing out) as momentum carries valuations stratospheric. Demerits for not buying when the market corrects or crashes and “blood is in the streets.” Not keeping up with my stock studies or pounce list means I am in no position to do so. Lots has been written on market cycles in books like these.

Borrowing from Part 1:

     > First things first: write this post. Since I haven’t blogged in what seems like
     > ages, it took a herculean effort to do basics like login to WordPress, get into
     > my blog folder, search the title index for links, remember what to do with
     > tags, etc. These tasks are automatic when I’m doing them multiple times
     > per week but after four months away, a chisel is needed for newfound rust.
     >
     > I can now be the last, probably, to say Happy New Year to everyone!
     > Greetings after a long hiatus.

My respite is well-deserved. The original intent was to post twice weekly. I doubled that once I started doing daily stock studies. Posting twice weekly might have left me right on schedule.

I have been much more productive during this blog hiatus than the last. Back in the day, I was a religious follower of the tastytrade production Market Measures (MM). Excepting those unknowingly missed, I watched every single episode through mid-2019. Over the last few months, I have binge-watched the last 5.5+ years of MM content (up to two months worth of episodes per day).

I will continue next time by starting to take a closer look at particular MM content that can potentially reshape and guide my future approach to option trading (which I still do, believe it or not!).

SKX Stock Study (10-14-24)

I recently did a stock study on Sketchers USA, Inc. (SKX) with a closing price of $67.56. This replaces the previous study that accidentally used default Low Stock Price Forecast (LSPF) rather than my manual override.

M* writes:

     > Skechers USA Inc is a lifestyle footwear company under the
     > Skechers GO brand name. Products offered include various
     > styles of women’s shoes, men’s shoes, girl’s shoes, boy’s
     > shoes, performance shoes, and work shoes. Allied products
     > offered are apparel, bags, eyewear, toys, and more. Its
     > products are available for sale at department and specialty
     > stores, athletic and independent retailers, boutiques, and
     > internet retailers. The company’s operating segments
     > includes Wholesale and Direct-to-Consumer. It generates
     > maximum revenue from the Wholesale segment.

Over the past 10 years, this medium-size company has grown sales and EPS at annualized rates of 13.0% and 12.4%, respectively. Lines are mostly up, straight, and parallel except for YOY sales+EPS decline in ’20 [pandemic] and additional YOY EPS dips in ’17 and ’22. 5-year and 10-year EPS R*2 of 0.21 and 0.34 [0.60 and 0.81 excluding ’20 and ’21], respectively, are poor and consistent with Value Line’s lackluster Earnings Predictability score of 40.

Over the past decade, PTPM leads peer averages but trails the industry in ranging from 7.0% in ’22 to 10.6% in ’15 with a last-5-year mean (excluding 3.4% in ’20) of 9.0%. ROE also leads peer averages while trailing the industry in ranging from 9.5% in ’17 (4.1% in ’20 excluded) to 26.0% in ’21 with a last-5-year mean of 16.5%. Debt-to-Capital is less than peer and industry averages with a last-5-year mean of 35.0%.

Value Line gives a B++ grade for Financial Strength and Interest Coverage of 33.1. M* reports Quick Ratio of 1.2 and assigns a “Narrow” Economic Moat [quantitative] to the company.

With regard to sales growth:

I am forecasting below the range (assuming the aforementioned is in error) at 9.0% per year.

With regard to EPS growth:

My 11.0% forecast is below the long-term-estimate range (mean of five: 16.5%). Initial value is ’23 EPS of $3.49/share rather than 2024 Q2 EPS of $3.73 (annualized).

My Forecast High P/E is 18.0. Over the past decade, high P/E decreases from 23.8 (’14) to 18.3 (’23) with a last-5-year mean (excluding 69.5 in ’20) of 17.7 and a last-5-year-mean average P/E (also excluding ’20 low P/E of 26.7) of 14.1. I am near bottom of the range (only ’21—probably downside outlier that could also be excluded—is less at 11.8).

My Forecast Low P/E is 9.0. Over the past decade (excluding 26.7 in ’20), low P/E ranges from 7.2 in ’21 to 19.6 in ’17 with a last-5-year mean of 10.5. I am forecasting near bottom of the range [only ’21 is less (7.2)].

My LSPF is $45.60. Default ($31.40) based on initial value from above seems unreasonably low at 51.9% less than previous close and 31.1% less than the 52-week low. Instead, I am using the 52-week low itself: 32.5% less than the previous close.

These inputs land SKX in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 9.4%.

PAR (using Forecast Average—not High—P/E) of 3.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 90 studies (my study and 28 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.7%, 11.5%, 19.7, and 12.8, respectively. I am lower across the board. Value Line’s projected average annual P/E of 17.0 is higher than MS (16.3) and higher than mine (13.5).

MS high / low EPS are $6.25 / $3.63 versus my $5.88 / $3.49 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $7.10 is greater than both.

MS LSPF of $44.10 implies a Forecast Low P/E of 12.1: less than the above-stated 12.8. MS LSPF is 5.1% less than the default $3.63/share * 12.8 = $46.46 resulting in more conservative zoning. MS LSPF is also 3.3% less than mine.

With regard to valuation, PEG is 0.96 and 1.5 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is elevated at 1.28 due in part to not excluding the [potential] downside P/E outlier[s] mentioned above.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. Also supporting this conclusion is MS TAR (13.3%) being 3.9% per year greater than mine.

As flagged in an audit note, my Forecast High P/E exceeds the 5-year average P/E. Excluding ’20 (unusually high due to pandemic) but including ’21 (unusually low as stock price rebounds) is the cause, which also pushes Relative Value higher.

For a company with pretty good fundamentals, the biggest detriment is ~36% stock appreciation over the last year. The stock carries a Value Line Timeliness rank of 1, which is something I don’t often see.

Per U/D, SKX is a BUY < $60. BI TAR criterion is met ~ $53/share based on forecast high price ~ $106 (no dividend).

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

MTN Stock Study (9-18-24)

I recently did a stock study on Vail Resorts, Inc. (MTN) with a closing price of $182.40.

M* writes:

     > Vail Resorts Inc Bhd [sic] is a resorts and casinos company that
     > operates mountain resorts and ski areas. The company has three
     > business segments that include Mountain, Lodging, and Real Estate.
     > The Mountain segment operates numerous ski resort properties that
     > offer a variety of winter and summer activities, such as skiing,
     > snowboarding, snowshoeing, hiking, and mountain biking. The
     > Lodging segment owns and operates hotels and condominiums.
     > The Real Estate segment owns, develops, and leases real estate,
     > typically near its other properties. The company generates the
     > vast majority of its revenue within the United States.

Over the last 10 years, the medium-size company grows sales and EPS at annualized rates of 8.0% and 14.9%, respectively. Lines are somewhat up, straight, and parallel except for YOY sales dips in ’20 and ’21 along with EPS declines in ’19, ’20, and ’23. Five- and 10-year EPS R^2 are 0.09 and 0.32, and Value Line only gives an Earnings Predictability score of 25.

Over the past decade, PTPM leads peer and industry averages while ranging from 3.5% in ’14 to 18.3% in ’17 with a last-5-year mean of 12.2%. ROE trails peer and industry averages despite increasing from 3.1% (’14) to 20.2% (’23) with a last-5-year mean of 14.1%. Debt-to-Capital is lower than peer and industry averages despite increasing from 44.5% (’14) to 75.1% (’23) with a last-5-year mean of 64.9%.

Quick Ratio is 1.0, and Interest Coverage is 3.4 per M* who assigns a “Narrow” [Quantitative] Economic Moat. Value Line gives a B+ grade for Financial Strength.

With regard to sales growth:

My 2.0% per year forecast discounts the long-term estimate due to projections of short-term contraction.

With regard to EPS growth:

My 7.0% annualized forecast is below the long-term-estimate range (mean of three: 10.9% per year). Initial value is ’23 EPS of $6.74/share rather than 2024 Q3 EPS of $7.56 (annualized).

My Forecast High P/E is 31.0. Excluding three triple-digit prints (’14, ’20, and ’21), high P/E over the past decade ranges from 31.9 in ’18 to 44.0 in ’22 with a last-5-year mean of 41.8 and a last-5-year-mean average P/E of 34.0 (excluding same three years for low P/E). I am below the range.

My Forecast Low P/E is 19.0. Excluding extremes of 83.7 (’14), 51.7 (’20), and 59.3 (’21), low P/E over the past decade ranges from 22.0 in ’18 to 30.0 in ’23 with a last-5-year mean of 26.2. I am forecasting below the range.

My Low Stock Price Forecast (LSPF) of $143.60 is default based on initial value given above. This is 21.3% less than the previous close and 13.0% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 0% in ’21 to 218% in ’20 with a last-5-year mean of 122%. My 55.0% forecast is near bottom of the range (only ’21 is less).

These inputs land MTN in the HOLD zone with a U/D ratio of 3.0. Total Annualized Return (TAR) is 11.9%.

PAR (using Forecast Average—not High—P/E) of 7.7% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment. I will skip this because only four other studies have been done over the past 90 days.

Value Line’s future average annual P/E of 30.0 is greater than mine (25.0).

Value Line projects high EPS of $12.70/share versus my $9.45.

My LSPF exceeds the rule-of-thumb [which really isn’t] 20% discount to previous closing price.

MOS is robust because my inputs are near/below respective analyst/historical ranges.

With regard to valuation, PEG is 2.4 and 3.2 per Zacks and my projected P/E, respectively: both high. Relative Value [(current P/E) / 5-year-mean average P/E] is low at 0.70 (with outlier P/E values excluded).

My chief area of concern for the company is liquidity. I’d like to see Interest Coverage higher, Debt-to-Capital lower, and PR—which I discounted substantially from 2023’s 118%—lower to alleviate concern of a future dividend cut.

Per U/D, MTN is a BUY under $180. BI TAR criterion is met: 293 * ((1 – (15.00 – 1.8) / 100) ^ 5) ~ $144/share given a forecast high price ~ $293.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).

SWKS Stock Study (9-17-24)

I recently did a stock study on Skyworks Solutions, Inc. (SWKS) with a closing price of $97.25.

M* writes:

     > Skyworks Solutions produces semiconductors for wireless
     > handsets and other devices that are used to enable wireless
     > connectivity. Its main products include power amplifiers,
     > filters, switches, and integrated front-end modules that
     > support wireless transmissions. Skyworks’ customers are
     > mostly large smartphone manufacturers, but the firm also
     > has a growing presence in nonhandset applications such as
     > wireless routers, medical devices, and automobiles.

Over the last 10 years, this medium-size company grows sales and earnings at annualized rates of 7.6% and 9.8%, respectively. Lines are up, cyclical, and parallel with YOY EPS declines in ’18 and ’22 and sales+EPS declines in ’19, ’20, and ’23 (FY ends 9/30). Five- and 10-year EPS R^2 are 0.28 and 0.61, but Value Line gives an Earnings Predictability score of 75.

Over the past decade, PTPM leads peer and industry averages while ranging from 22.6% in ’23 to 36.5% in ’16 with a last-5-year mean of 27.2%. ROE leads peer averages but trails the industry while ranging from 16.6% in ’23 to 29.6% in ’21 with a last-5-year mean of 21.9%. Debt-to-Capital is much lower than peer and industry averages despite increasing from 0% (through ’19) to 19.9% (’23) with a last-5-year mean of 17.1%.

Quick Ratio is 3.3 and Interest Coverage is 23.8 per M*, who assigns an “Exemplary” rating for Capital Allocation and “Narrow” Economic Moat. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

I am forecasting below the long-term estimate at 2.0% contraction per year.

With regard to EPS growth:

My forecast of 2.0% per year is less than all but one long-term estimate (mean of six: 7.2%). Initial value is ’23 EPS of $6.13/share rather than 2024 Q3 EPS of $4.85 (annualized). While possibly aggressive, I think the business cycle may be close to a nadir for this cyclical industry.

My Forecast High P/E is 19.0. Over the past decade, high P/E ranges from 17.1 in ’16 to 32.1 in ’20 with a last-5-year mean of 23.3 and a last-5-year-mean average P/E of 18.1. I am near bottom of the high P/E range (only ’16 is less).

My Forecast Low P/E is 10.0. Over the past decade, low P/E ranges from 9.8 in ’14 to 16.6 in ’18 with a last-5-year mean of 12.9. I am forecasting near bottom of the range (only ’14 is less).

My Low Stock Price Forecast (LSPF) is $68.00. Default ($61.30) based on initial value from above seems unreasonably low at 37.0% (28.0%) less than the previous close (52-week low). My (arbitrary) forecast is 30.0% and 20.0% less, respectively.

These inputs land SWKS in the HOLD zone with a U/D ratio of 1.1. Total Annualized Return (TAR) is 6.3%.

Over the past decade, Payout Ratio (PR) increases from 9.2% (’14) to 41.4% (’23) with a last-5-year mean of 32.8%. I am forecasting near bottom of the range at 10.0%.

PAR (using Forecast Average—not High—P/E) is less than I seek for any size company at 0.9%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 81 studies (my study and 46 other outliers excluded) over the past 90 days, averages (lesser of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 2.0%, 7.0%, 21.0, 12.9, and 31.2% respectively. I am lower across the board. Value Line projects an average annual P/E of 25.0 that is greater than MS (17.0) and much greater than mine (14.5).

MS high / low EPS are $7.44 / $5.32 versus my $6.77 / $6.13 (per share). My high EPS is less due to a lower growth rate. Value Line’s $7.55 is just higher than both.

MS Low Stock Price Forecast (LSPF) of $74.80 implies Forecast Low P/E of 14.1: greater than the above-stated 12.9. MS LSPF is 9.0% greater than the default $5.32/share * 12.9 = $68.63 resulting in more aggressive zoning. MS LSPF is also 10.0% greater than mine.

With regard to valuation, PEG is 4.1 and 9.8 per Zacks and my projected P/E, respectively: both extremely high [due to low growth estimates]. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly elevated at 1.1.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. This is further supported by an MS TAR (9.8%) that is 350 basis points greater than mine.

Like every cyclical company I have studied thus far, visual inspection is weak.

I chose to do this stock study regardless largely due to apparent inconsistency in the Value Line analysis. 5-year annualized high and low stock projections are impressive despite concomitant projection of long-term EPS contraction. Part of what allows this to happen is a future average annual P/E that is [inexplicably] higher than any seen from 2008 – 2023. Revenue is also projected to contract. How does it make sense for stock price to appreciate significaintly in the face of declining revenue and EPS over the next five years?

Per U/D, SWKS is a BUY < $83. Given a forecast high price of $128.60, 128.6 * (((1 – (15.0 – 0.9) / 100)) ^ 5) ~ $60/share meets the BI TAR criterion.

A 90-day free trial to BetterInvesting® may be secured here (also see link under “Pages” section at top right of this page).