A key level of resistance has formed in the chart of Lamb Weston Holdings (LW). If this level is broken, a breakout could occur.
LW is the world's second- largest producer of branded and private-label frozen potato products, such as French fries, sweet potato fries, tots, diced potatoes, mashed potatoes, hash browns, and chips.
While growth was down in its latest quarter, its earnings and sales both beat estimates. The company’s Retail segment is showing strength as the pandemic led to rising demand for at-home consumption. LW has also been undertaking initiatives to boost its offerings and operating capacity.
The company had $764 million in cash as of the end of the last quarter, compared to $2.7 billion in long-term debt. Though it sports a healthy current ratio of 2.9, indicating it has the liquidity to handle short-term obligations.
Earnings are expected to grow by 30.3%, and revenue is expected to grow by 9.7% this year. The stock is a bit overvalued with a P/E of 38.6 and a Price to Sales of 3.2. The company is quite profitable with a return on equity of 72.4%.
The stock has shown bullish near-term momentum, but negative returns over the mid and long-term. This has led to a “Neutral” rating in our POWR Ratings system.
Take a look at the 1-year chart of LW below with my added notations:
LW has formed a key level of resistance at the $80 (red) mark during the past several weeks. The stock has tested that level multiple times since the beginning of December, and it is currently sitting right under that level again. A solid close above $80 should lead to higher prices for LW.
A long trade could be entered on a breakthrough of the $80 key level of resistance.
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LW shares were trading at $77.58 per share on Friday morning, down $0.56 (-0.72%). Year-to-date, LW has declined -1.47%, versus a 0.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp, CMT
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock.
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