Karex broke above its intermediate downtrend line, RR at RM2.35 in June. Then the share price consolidated in a "flag formation" ('ABCD'). Today, Karex broke above the flag formation at RM2.47-2.48 (see Chart 1). This breakout could be the continuation of the prior uptrend which started in late 2013 (see Chart 2).
Chart 1: Karex's daily chart as at Aug 9, 2016 (Source: ShareInvestor.com)
Chart 2: Karex's weekly chart as at Aug 9, 2016 (Source: ShareInvestor.com)
In the preceding quarter (QE31/3/2016), Karex's profits dropped sharply due to lower sales, lower profit margin and foreign exchange losses. At the current price of RM2.53, Karex is trading at a trailing PER of 35x. Based on its prior year earning growth of 32%, Karex has an acceptable PEG ratio of about 1x. It is crucial that its earning growth remains elevated at about 30%, failing which the PER of 35x will not be acceptable. In the next 3 weeks, Karex will announce the results for QE30/6/2016. Anything less than a strong recovery will not be acceptable.
Based on the bullish technical breakout, Karex is expected to continue to go higher. For now, let's treat this as a trading BUY while we await the next quarterly result to confirm the return of earnings growth for this stock.