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Fan Yang

GMS Inc. $GMS in a Bullish Breakout from a Diamond Pattern While Q4 Earnings Disappoint

Gypsum Management & Supply Inc. $GMS reported disappointing earnings and sales for its fiscal Q4 2019 period. Here's a summary from Zacks.com:

GMS Stock Rises 5.2% Despite Q4 Earnings and Sales Miss

GMS Inc. (GMS - Free Report) reported fourth-quarter fiscal 2019 results, wherein earnings and sales lagged the respective Zacks Consensus Estimate. The company reported adjusted earnings of 68 cents per share, missing the consensus mark of 71 cents by 4.2%. Also, net sales of $780.15 million missed the consensus estimate of $785 million by 0.7%.

Nonetheless, the top and bottom lines increased 22.7% and 21.4%, respectively, on a year-over-year basis. The upside was mainly attributable to greater commercial activity, pricing improvement and acquisition synergies. Consequently, shares of the leading interior building products distributor gained more than 5% post the earnings release.

During the reported quarter, GMS achieved 7% organic sales growth, owing to higher volumes and pricing improvement across the board.

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GMS's share price actually rallied significantly after the earnings miss - maybe its the organic sales growth, or maybe its just a name that has often surprised to the downside. Here's a chart of the previous EPS surprises from Zacks.com:


GMS Daily Chart

(click to enlarge)

Diamond Bottom?
- On the daily chart, we can see that price has been bearish entering 2019.
- However, looking back now to price action since November 2018, we can see a diamond patter development.
- The key price action was last week's bullish breakout from this diamond patter, and above the $20.95-$21 resistance.
- Also note that price is above the cluster of moving averages that includes the 200-day SMA.
- I think a bounce off of $20 at this point would add to the bullish confirmation. 
Resistance:
- I think there is at least upside to $24. 
- Above that, I think there could be strong resistance in the $26-$26.25 area.
- At this point, I would limit the most aggressive bullish outlook to $28.00. 
Trade Plan:
- GMS is not a sexy name, but has some upside in the short-term.
- I am putting an order at $20 with the target of $26 and a stop around $16. 

GMS Weekly Chart

(click to enlarge)



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