Stock Trade of the Week: T. Rowe Price (TROW)

T. Rowe Price (Nasdaq: TROW) – T. Rowe Price is an investment management firm based in Baltimore, Maryland. The company provides its services to individuals as well as institutional investors. The company is known mostly for its line of mutual funds that include equity and fixed income products. T. Rowe Price was founded in 1937.

TROW has seen solid earnings and sales growth over the past few years with the most recent quarter showing being really strong. Earnings have grown at a rate of 11% per year over the last three years while sales have grown at a rate of 8% over the same period.

In the most recently quarterly report, earnings grew by 46% while sales grew by 13%.

Analysts expect earnings to grow by 35% for the year and sales are expected to grow by 13.7%.

The profitability measurements for T. Rowe Price are extremely impressive.

The return on equity is at 25.1%, the profit margin is at 45.2%, and the operating margin is at 43.9%.

Given the impressive fundamental performance, I expected to see extreme optimism toward the stock, but that isn’t the case.

The short interest ratio is at 5.66 and that could provide buying pressure if the stock rallies like I think it will.

Analysts are also rather pessimistic with only four out of 16 ranking the stock as a “buy”. Nine analysts rank the stock as a “hold” and three rate it as a “sell”. This leaves room for upgrades that could spur buying as well.

What caught my eye on the chart for TROW was how the 52-week moving average has held up as support in recent weeks. The stochastic readings dipped in to oversold territory and have now made a bullish crossover thanks to the bounce off of the moving average. I look for the stock to rally over the next few quarters.

Suggested strategy: Buy TROW with a maximum entry price of $114. I would set a target of at least $160 over the next 12 months (for a potential return of 40-plus% from current prices). I would also suggest a stop at $105.

— Rick Pendergraft

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