Despite a gigantic cash balance, astronomically high margins/growth/profitability ratios, and among of the lowest valuation multiples in the whole Industrials sector, shareholders have been actively dumping ZIM over the past month, culminating in total stock capitulation:
Despite this, I believe that ZIM (NYSE:ZIM) is an excellent investment, even if the uptrend reverses. Furthermore, despite the recent stock performance disaster, ZIM is much better in the medium term – that is the topic of this essay.
Technical Analysis?
Since my last piece on ZIM, in which I attempted to comfort investors following the company’s earnings miss, the stock’s total return has dropped by 25%, compared to a 4% drop in the S&P 500 Index. Some ZIM investors have approached me and asked whether I had changed my mind; I have said no each time. In the short run, a stock market is a voting machine, as Ben Graham famously stated. However, when your portfolio goes down 15-20-30% due to a single stock, it is natural to question whether this machine will ever become a weighing machine. So, regardless of how much you trust in the stock, I generally add to my response that you should strive to reduce the danger of extreme drawdowns. Otherwise, you should manage your investments using the dollar cost averaging approach or another passive strategy.
As a result, I’ve been paying more attention to the technical aspects of each investment I make. In retrospect, I recognize how unappealing it is to observe an unrealized loss of several dozen percentage points – with a tactical portfolio strategy based on technical analysis; such drawdowns are possible but unlikely.
The amount of basic coverage on Seeking Alpha is the second reason I created a complete essay on ZIM’s technical analysis. I’ve read many beautiful pieces, such as those by James Hanshaw and Julian Lin, that explain how I used to look at ZIM. In addition, you’ve undoubtedly read many articles regarding ZIM’s fundamental appeal. However, from a technical standpoint, the stock is still relatively unknown.
Yes, technical analysis.
Now that I’ve made my case, I want to explain and show you how I envision the future of ZIM stock.
We are still far from seeing the first dramatic decrease in this stock in the last year; something similar occurred in March 2022 after achieving an all-time high. The stock then fell 44% between the end of March and April. Furthermore, market players mostly ignored oversold levels, with selling continuing until the RSI fell below 20. Again, the past three significant sell-offs began following the dividend payment – each time, the market did not trust that the excellent dividend history could continue in the future. At the same time, the price has been more “respectful” of the long-term moving average on a shorter time scale, occasionally returning to its bounds.
Based on the current scenario, the following conclusions may be drawn:
1. ZIM is heavily oversold on both the short and long-term timeframes;
2. The price has reached the support level of the price channel on the daily chart;
3. Similar to the previous two periods with similar sell-offs, ZIM is poised for a 25-30% reversal without breaking the boundaries of the main downward price movement.
The first two findings support my core argument. First, the price of ZIM went lower and lower, each time recovering to the lows of the primary price channel – doing so around two weeks after hitting bottom: I agree that catching the precise bottom is impossible. But, in my opinion, an investor will not make a significant error if they buy at the current level because the stock is protected by its fundamental profile at such times. Buying ZIM during a downturn is not the same as buying Nvidia (NVDA) because the valuations are vastly different in ZIM’s favor.
With an enterprise value of 10% of expected EBITDA, ZIM is now valued by the market as if it will one day have to file for bankruptcy, which is entirely false – the firm can buy itself out of the market if it sells all of its existing assets, as it did when it went public in early 2021:
At the same time, the tangible book value is 6.5 times more than the enterprise value at the time of writing: It appears that the market needs at least one piece of good news for ZIM shares to rise – with the market being oversold, investors will be eagerly awaiting any confirmation of such a fantastic buying opportunity.
Bottom Line
I am not a CMT charter holder, let alone a stock market technician. As a result, consider my essay to be a search for a good trading opportunity based on widely acknowledged notions of technical analysis, which are frequently incorrect – that is, a risk that every trader/investor must accept. Finally, the third danger of my argument is that ZIM’s downward trend will continue – in the prior two occurrences when the stock reached a heavily oversold RSI level, it still plummeted by roughly 15% before turning around. As a result, I advise you to proceed with caution.
In any event, the technical analysis I’ve supplied for your consideration is a supplement to whatever optimistic articles you’ve read on Seeking Alpha in recent weeks. I embrace the bullish fundamental viewpoint and do not want you to read anything else. The last time I paid close attention to price action analysis was in my recent article on Grindrod Shipping (GRIN), published just a few weeks after my thesis was proven.
Featured Image – Megapixl © Lledospain
