A gain of 9.35% in 2019 for shares of World Wrestling Entertainment, Inc. (WWE) tells a story of a stock gaining alongside a high amount of unusual trading activity. It's bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved. Over time, we've learned how stocks with a history or strong fundamentals tend to rise in price. Smart money managers are always looking to bet on the next outlier stocks … the best in class.
The main criteria we look for when betting on upside in a stock bouncing after a period of pressure include a history of strong fundamentals, strong technicals and big potential buying in the shares. I'll go into the fundamental picture later, but the true tell on the near-term trajectory of the stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall.
For most of 2018, WWE was a stock gaining month after month. Beginning last October, the stock got caught up in the massive wave of selling that crushed the market. In our view, pullbacks = opportunities, especially a pullback we see as mechanical in nature.
For Mapsignals, when we look for an entry on a leading stock, we want to see an increase of potential buying. Just to show you graphically what our unusual trading activity signal looks like, have a look at all of the unusual institutional (UI) signals WWE stock has made over the past year. Up until September 2018, you can see a lot of buy signals, which coincide with the stock nearly tripling in price. Then, beginning in October, as the whole market pulled back drastically, WWE came under pressure. This is notable because stocks move based on supply and demand. What is really catching our eye now is the re-emergence of recent UI buying:
So far in 2019, WWE stock has logged one unusually high-volume day, indicative of buying in the shares on Jan. 18, 2019 (see chart above). However, what gets our attention now is that WWE stock is gaining quietly but in an unusual way, which suggests that demand for the stock is increasing. If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Just like you don't want to fight the trend, you also do not want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on a strong candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. The following are a few areas that grab our attention in the case of WWE stock:
- One-year outperformance vs. market: +150.5% vs. SPDR S&P 500 ETF (SPY)
- One-year outperformance vs. sector: +146.11% vs. Consumer Discretionary Select Sector SPDR ETF (XLY)
- Recent bullish unusual trading signals
Now, we take it a step further and score the best stocks showing unusual trading activity. Below you can see the historical times since 2017 when WWE stock made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. Clearly, we have been all over the massive run-up over the past couple of years. We'd even venture to call this stock an outlier:
On top of a technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, World Wrestling's latest earnings report showed solid growth:
- 2018 (first nine months) year-over-year revenue growth rate: +12%
- 2018 (first nine months) operating income growth rate: +26%
WWE is breaking out and has recently shown great fundamentals. We believe that the current level for the shares is in position for further upside. The narrative for World Wrestling is one where the company dominate its space. I am always on the lookout for great companies showing usual trading activity in the shares. The best companies tend to trend higher over the long run. All of this points to a long-term opportunity for the stock.
The Bottom Line
WWE represents a potential buying opportunity for the long-term investor. Given the lift in price, historical fundamental outperformance and recent unusual buying signals, this stock could be worth a spot in a growth-oriented portfolio.
Disclosure: The author holds no position in WWE shares at the time of publication.