Edmond Jackson's Stockwatch: Moneysupermarket.com

It is intriguing to follow events at FTSE Mid 250-listed, price comparison website Moneysupermarket.com, for they test critical ways of judging shares.

Its price has fallen in a see-saw trend from 221p last May to near 140p and edge up to 145p currently - the plunge from late July affirming a classic head-and-shoulders chart pattern considered liable to foreshadow a major move. The challenge is to determine whether slower mid-year revenues were just a blip or a sign of going ex-growth in a competitive sector.

On a chartist view, Redmayne Bentley describes Moneysupermarket as "a technical trader's dream over the last 12 months. The indicators have been strong, whilst there has been plenty of volatility for the nimble trader". This broker has turned bullish with a 'strong buy' stance currently on grounds the shares now reside at a previous resistance turned support level. "In the midst of this head and shoulders pattern an open gap has been left at 200p and, as we know, all gaps must be closed."

Pure technical analysis tells you to trust market prices, as all known facts about a company are likely factored into a share price. While I am pragmatic to employ any method that works, I believe markets can get swayed and so I want to have a grip on company fundamentals too.

Moneysupermarket's financial profile (see table) shows a business capable of being hit by recession, yet it has clawed its way back since 2009 and record earnings are projected for 2013 and 2014. This means the share qualifies for the price/earnings to growth (PEG) ratio which is the price/earnings ratio (P/E) divided by the projected earnings growth rate. A classic measure of growth shares, it currently implies 0.7 where a value under 1 is deemed attractive. The potential flaw with PEGs however is their liability to signal 'buy' after a period of profit expansion with analysts following directors' guidance; then if the economic cycle turns down or competition ensues, forecasts get cut and the PEG soars well over 1.

There is a fair chance analysts are following directors' guidance because there is not much variance in forecasts except for Numis, which (as published in Company REFS) is cited well below others on profits (£42.8 million targeted for 2013 and £59.2 million for 2014), albeit in line with consensus as regards earnings per share and actually has the highest dividend forecasts. Numis re-iterated 'sell' on 2 October and has been negative on the stock since May 2012 due to concerns about competition from Google, although its target has been around the 140p mark, just recently met. Other brokers are more bullish with targets up to 210p - so the medium-term trend will be a test also of brokers' analysts.

The company has not seen a dent in its traffic as feared. First half 2013 performance was enhanced by the September 2012 acquisition of Moneysavingexpert.com, hence like-for-like profit measures soared in a range of 18% to 71% on revenue up 10% to £112.3 million. Even excluding the contribution from MSE, first half revenue grew by 7% and normalised operating profit by 9% - despite some impact from Google changing its search algorithms and rivals' TV advertising campaigns.

But sellers latched onto a slowdown in June and July which has meant questions about second-half progress, hence full-year forecasts. Management blamed this on an advertising campaign coming a month later in August, the government's Funding for Lending scheme deterring savers (from using the site) and slippage in search results on Google. This all combines for fear the business is going ex-growth just like some sceptics warned it would eventually, at flotation at 170p in August 2007. Notice how the market is liable to de-price a share a lot more rapidly than it re-rates over years. Valuation is mainly earnings, cash flow and dividends, net tangible assets being scant.

Amid strong conversion of operating profit to cash flow, the interim dividend was hiked 20% to 2.16p and a special dividend of 12.9p was paid on 26 July - hence the abnormal jump in 2013 projections with about 7.5p projected for 2014, implying an ongoing prospective yield of 5%. Earnings cover of just 1.5 times means forecasts must be dependable however. The market's pricing is exacting such a yield to compensate for perceived risks.

Two other markers have introduced wariness. On 5 June the founder chief executive sold 100 million shares at 200p but he continues to own 29.5% which could be described as more appropriate ownership. So another upshot is whether institutional investors (i.e. funds you might buy/own) have joined the party late, buying his shares in the middle of a "head and shoulders" formation. Secondly the finance director resigned at end-July after nine years, which could be seen as ripe time for a fresh challenge, also that he sees tougher challenges ahead. He will anyway stay until June 2014 at the latest.

Potentially this is now a long-term capital growth share after its fall, also for yield, depending on the mid-November interim management statement.

For more information see moneysupermarket.com.