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On the SPOT blog (02/10/2022) [P..]

Updated: Aug 31, 2022

Inflation data and Bullard's comments on interest rates probably impacted the US equity markets today. Nothing very surprising but that is bound to trigger a reaction from investors in the short-term.

Yesterday, I skipped talking more about IRBT and talked about PYPL instead. Today as well I noted another company that I cannot ignore but I'll talk briefly about IRBT as it's gScore yesterday made a good example on the stocks trading on the premium side. Yesterday, it's gScore was -0.62 going into the earnings. So, for a stock such as IRBT trading at such a high premium prior to earnings release, it creates a decision point for some. IRBT had very typical characteristics in micro-gScores. Not only did it trade at a huge premium, it's 1Y OLS slope was/is -ve, huge -ve micro-gScore for Analysts' recommendations, a significantly -ve micro-gScore for options data (short ratio >15 is way beyond my comfort zone), somewhat high trailing PE and even higher forward PE and -ve Sentiment micro-gScore. With that kind of data, if I'm in the green on IRBT then I just take the profit and not take a chance on the earnings (while recognizing that earnings could take the price either way). That is just how I manage the unknown. You would have made a decision based on your own criteria.

Today, I noted a strong brand (PepsiCo. ticker: PEP) in the discounted zone so let me discuss it's stock. I don't ignore when a company with so many famous and successful products in the market e.g. Lay's, Ruffles, Doritos, Tostitos, Cheetos, Fritos, Quaker oatmeal, Aunt Jemima, Pepsi, Mountain Dew, Aquafina, Dr Pepper etc. enters the discounted zone.

PEP has a lot of debt on the balance sheet and it's total debt/capital ratio is > 65%. However, it generates enough cash flow and doesn't seem to have any trouble in meeting it's debt obligations. After all, this company has raised it's dividend for decades. It also has been beating on revenue and earnings for many consecutive quarters in the recent past. PEP again beat the revenue and earnings estimates in it's Q4. Not only that, it also increased dividend and put a new share buyback program ($10B through Feb 2026).

Why is it discounted then? I suppose that is because the current pandemic economy along with supply chain issues, inflation, transportation costs, foreign exchange impact, rising interest rates all pose headwinds for this stock. As if to emphasis that, PepsiCo provided earnings guidance for 2022 that is below the street's estimate. It's trailing and forward PE < 30.

That puts things into perspective. Now, let's see if it is discounted enough to start building a position. It's overall gScore is 0.54. Let's zoom into the micro-gScores:





Bollinger bands












Options data


Analysts' recommendations


Sentiment score


*Note: There might be changes after earnings release related to upgrades/downgrades/price revisions.

Price micro-gScore is very -ve with the price still falling and in the top quantile of it's 52-week range. RSI is below average and falling. Price is near the lower Bollinger band. MACD showed sell signal when price was ~$174 and number of days in this -ve trend is in the top quantile. Kalman Filter is showing that the price is well below the "filtered" average. OLS is showing that this stock fits the model very well and that it's 1Y and 5Y Least Squares line slope is +ve so it give me confidence in using dollar cost averaging strategy for this stock. OLS is also showing that the price is well below the expected average. MFI is showing below average and falling. Stochastic is showing below average level. Options data looks great (short ratio < 3 and calls/puts activity seems bullish). Analysts' recommendations were some what -ve but there are recent price revisions and need to watch for latest upgrades/downgrades post earnings. Sentiment score is +ve.

It is perhaps prudent to wait for the price drop to stop before making a buy/sell/hold decision. You will obviously decide for yourself if this is discounted enough.

Here are the charts from Gammath SPOT that should help visualize some of this data:

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