Ask The Trader
Wednesday, May 02 2001
Checking Into Dynegy
The price of Dynegy is currently much more than last split--what do you think????
Thanks for writing Barbee. Dynegy (NYSE:DYN) has been on our radar screen for about a month now. We like how the provider of energy products has been acting, and a quick glace at the company's fundamentals tells us that the stock could go higher, provided energy prices hold at current levels.
However, as far as a split goes, DYN has a way to go before it becomes a serious candidate again. This is because the last time the company announced a 2:1 split it was trading at $77.00, which is about 35% higher than where the stock left off trading yesterday.
Getting back to the company's fundamentals, compared to the energy sector, DYN trades at a slight P/E premium. This usually signals not only a well-run company, but also keen buying interest. The trailing twelve-month P/E on DYN is 34.49 compared with the S&P energy sector's (TTM) P/E of 21.59.
As far as being overpriced, it appears as if the company is being rewarded for its strong growth rates. Its trailing twelve-month sales versus (TTM) sales one-year ago is 115.76% as opposed to the sector's same-period sales growth rate of 36.31%. In addition, DYN has seen EPS growth of 118.51% for its trailing twelve-months as opposed to the energy sector's growth rate of 85.54%.
Turning to the chart, we can see that after a quick run up from January through October of 2000, DYN has built a long, 20-point wide base. The top of this base is defined by the $60-level. We are just off this high and need volume to build as we attempt another breakout.
We also observe that the peak of $57.75, achieved on 12/27/00, is now acting as resistance for DYN. On the other hand, the good news is that the DYN's 10-dma has provided good support for the stock since 4/10/01 and doesn't appear to be weakening.
So bottom line is that we wouldn't be a buyer of DYN until it could prove to us that it is ready to start its next leg higher. Proof of this would come with a break and close above $60 on volume of at least 1.8 million shares. Good volume is important on the breakout since volume has been drying up as the stock marches higher. Generally, you'd like to see volume build as the stock advances.
Good Luck and Have a Profitable Trading Day
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