“Shares in Harvey Norman performed strongly for the most part of 2020, as extended lockdowns in Australia meant that spending on the home increased,” Michael said.
“The key factors underpinning the investment case now for HVN include the potential for recovery in operating leverage in the Australian franchise operations, as well as its international expansion plans.
“The benefit from these initiatives are considered to be medium-term catalysts and the shares currently trade on a 1-year forward P/E multiple of approximately 12x, which is broadly in line with the recent average. Looking at how it is trading now, are we likely to see it head lower or higher in the short term?
“In August, HVN failed to get above the March peak near $6. It then fell away dramatically towards the May low. Having been unable to find support at the May low we can see it now tracking sideways just above support near $4.80.
“It is too early to know whether this support level may hold.
“HVN needs to build a larger base here. A break under $4.80 would have us targeting support back near $4.50.
“A push back above about $5.05 would be a positive sign and a potential buying opportunity,” Michael said.
Harvey Norman
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