Strong fundamentals, and a healthy base? What’s not to like about Essent Grouop (ESNT)? (April 06, 2017)
Today I want to look at Essent ( NYSE:ESNT ). This is a private mortgage insurance company, PMI, which we all love when we can’t put enough down. This is in a really, really nice pattern. Yesterday it was a little bit of a heartbreak because the stock was right up at this resistance area. It rallied hard, sucked a bunch of people in; you can see the kind of volume spike that it had, and then it closed down a little bit below where it opened. So basically yesterday, if you bought, you were losing money at the end of the day, except for about 4 people. So this is a bad thing, like a fakeout, it is a busted breakout, not good.
However, now we get like a total reversal of fortunes today. Yesterday we get this, and then today we get this. It is like a continuation of this downdraft and then a move up; to where rather than yesterday where it closed near the low of the day, today this closed near the high of the day. So what we have got is a trading box right here. Here is your support. Here is your resistance. But look, this resistance line has now been broken, so I think Essent ( NYSE:ESNT ) is giving us a second chance to get in. They don’t report earnings for a month so that is not an issue.
The fundamentals on this company are really pretty strong. Their growth rate, over the last 3 years, 64 percent earnings growth. Their P/E is 15. This is one of those monster companies, the fundamentals just work. That is all well and good, I can show you a lot of companies where the fundamentals just work and the stocks are going from upper left to lower right, “Oh, buy them on the way down.” But here, you are getting a chance to buy a high-growth company with a CHART pattern that is giving you another leg sideways before the next leg higher.
I would be taking some stock here. I wouldn’t want to wait for the stock to breakout above 38.00. By the way, it may not, maybe the stock is going to be 31.50 tomorrow. My reason for saying that is, you have to manage your risk. But here, with the stock up above this level, I would say you keep your stop a little bit below the 50-day moving average, you take a small position, you are risking about 4 percent, that is a pretty good stop. That is pretty good. You are risking about 4 percent, then you add to the position. If it starts breaking out above 38.00, then you zoom out and you let the puppy run. So that is how I would be trading Essent ( NYSE:ESNT ).