(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
JPMorgan Chase & Co. (JPM) is trading lower by nearly 3% after reporting results that came in better than estimates for the first quarter. But investors are not enthusiastic following results. Additionally, a technical analysis of the stock's chart suggests shares could fall another 6% to roughly $104.
Beyond the charts, other warnings signs may be bubbling beneath the surface as the outlook for revenue and earnings beyond 2018 are seen slowing dramatically. Additionally, shares of JPMorgan have been rising in anticipation of the strong earnings growth in 2018, helping to lift shares of the bank, while giving it multiple expansion. But the one-year forward P/E is at the higher end of its historical range, and slowing earnings growth may lead to a contraction of that earnings multiple.
Shares of JPMorgan initially jumped following its quarterly results but quickly reversed after hitting a resistance trendline around $115, leading to a sharp intraday reversal. The reversal could trigger a further decline in the stock pushing the price all the way down to $104, where a significant support level sits. Should shares fall to $104, it would be a decline of nearly 10% from its intraday high on April 13 and an approximately 13% decline from the intraday high of roughly $119.30 on Feb. 27.
The relative strength index has also been trending lower as well, since peaking around 80 on at the end of January, and that could sign the stock has further to fall, as well.
It isn't just the technicals signaling trouble ahead for the banking giant, because revenue and earnings growth rates are expected to slow dramatically in the coming years. Analysts are currently looking for earnings to climb by over 29% in 2018, but that is seen falling by more than half in 2019 to only 9.5% and falling again in 2020 to 8.4%. It isn't just earnings growth that's forecast to slow, because revenue is seen slowing from roughly 8.5% in 2018 to 4.2% in 2019 and 3.4% in 2020.
The one-year PE ratio has also been falling and is currently at 11.7 times 2019 estimates of $9.70 per share. But the PE ratio is also well above levels seen from 2014 through the end of 2016 when all of the bank stocks exploded higher following the U.S. presidential election on expectations of strong U.S. economic growth and inflation, leading to earnings-multiple expansion. The slower growth rates analysts are forecasting suggest that the PE ratio may start contracting further.
But as investors and analysts continue to digest JPMorgan's latest results, they could once again begin to raise earnings estimates and make the bearish sentiment disappear quickly.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.