In his "Homework" segment of Mad Money Thursday night, Jim Cramer followed up on a stock that had stumped him during earlier shows. He said that Cardlytics (CDLX) has a unique business model and tons of growth. Their recent deals with two banks are huge wins for the company, he admitted, but the stock has a big problem.
Shares of CDLX are up 173% in just the past six months and trade at an astronomical 107 times earnings. Given the company has small earnings, Cramer also considered valuing the company based on revenues. Using that metric, Cardlytics still trades for seven times revenue.
Cramer said he'd bless buying Cardlytics but only under $70 a share. The stock closed Thursday at $93.07. Let's check the charts if a pullback to $70 is in the cards.
In this daily bar chart of CDLX, below, we can see that shares of CDLX have made a big move higher the past 12 months. CDXL is up some five-fold in a year and has made someone's portfolio very happy.
Prices are above the rising 50-day moving average line and perhaps extended above the rising 200-day moving average line. The daily trading volume has been increasing since May and that is a positive for old chart watchers like myself.
The daily On-Balance-Volume (OBV) line has been in an uptrend the past year and tells us that buyers of CDLX have been more aggressive.
The 12-day price momentum study or indicator in the bottom panel of the chart shows the start of a bearish divergence. CDLX made a new high for the move up this month but the rate of the price gains has slowed. This is probably not enough of a bearish divergence to generate a correction but it is now on our watch list.
In this weekly bar chart of CDLX, below, we have a limited price history but the indicators are mostly bullish with a rising 40-week moving average line and a rising OBV line. The 12-week price momentum study shows that the pace of acceleration has started to slow.
In this Point and Figure chart of CDLX, below, we can see two key features. First, this chart shows a potential upside price target of $130. Second, a break below $81 will likely weaken the chart as it would break nearby support. While Jim Cramer likes CDLX on pullback to $70, I would not want to catch a falling knife.
Bottom line strategy: Analysts have different approaches to the market. Some want to buy a correction in a strong trend and others like to buy strength because you never know how far a stock will decline once it turns lower.