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Technical view: Ares Capital Corporation (ARCC)

Technical view
 

ARCC is in stage #4. The stock appears to be consolidating and it could eventually bounce but the trend is weak, and we still have a strong sell signal. The weekly chart is trendless with no signal, but it indicates that there may be no more selling, at least for now.

 
Technical view weekly
 

The company recently saw a significant reduction in revenue, so the price decline may have been justified. However, in the Q4 of 2022 revenue started to increase again:

 
Technical view weekly
 

Free cash flow is a bit erratic and not the way I would like to see:

 
Technical view weekly
 

Another significant concern is rising debt and not enough cash on hand to pay it off. This can eventually backfire and the company will have to address it in some way:

 
Technical view weekly
 

The dividend growth is also irregular but growing. If this metric worsen, I may take this position off of my portfolio:

 
Technical view weekly
 

It is typical for a REIT to issue new shares to provide financing to obtain new properties, but here we see rising shares outstanding and the debt hand in hand. Honestly, I do not like it.

 
Technical view weekly
 

Fundamentally, the stock is undervalued and trading way below its fair value and normal P/E, providing a margin of safety making this investment relatively safe. However, in the next 2 years, Wall Street expects revenue declining by 5% in 2024 and 14% in 2025. This may impact the stock price. It may be moving sideways or keep declining.

 
Technical view weekly
 

The AFFO data are scarce for this company but it appears that it has enough cash flow to make the stock price undervalued.

 
Technical view weekly
 

The stock is not a grower so do not expect capital appreciation, rather this stock should be bought for dividend income only. Thus, the strategy should be set to buy when the stock is selling low and hold during high prices. Currently, any price below $17.50 can be considered a good entry price.

 
Technical view weekly
 

The stock is now MODERATE BUY
 

This post was published in our newsletter to our subscribers on Saturday, March 19th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.
 





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