Valuation analysis for Arch Coal Inc (NYSE:ACI)

Sometimes investors like to become much more aggressive with a small amount of money.  Some investors take a different path than others when they do this, but the objective is usually to use that small portion of the portfolio to engage in investments that might provide huge returns.

ACI Arch Coal EPS Earnings Growth

Arch Coal Inc (NYSE:ACI) is a company that has the potential to provide huge returns for aggressive investors, but there are no current buy signals and no fundamental reasons to buy the stock at this time.

However, there is one possible positive take away when we look at our combined observations of earnings and revenue.  First, quite clearly, earnings have deteriorated, earnings growth is considerably negative, and nothing as that relates to earnings specifically is positive.  The one possible positive, given this combined observation, exists in the revenue chart specifically.

ACI Arch Coal Revenue

The positive takeaway is not that revenue has been increasing, but instead that revenue no longer is deteriorating like it was.  Over the past four quarters Arch Coal has stabilized revenue and the deterioration that occurred before that has at least been stayed.  This is a first step towards earnings recovery of course, and although earnings growth does not yet exist, earnings have actually continued to deteriorate even though revenues have stabilized; stability in revenues is required before stabilization in earnings takes place and can be trusted.

Technical take:

According to our real time trading report for Arch Coal the stock is very close to longer term resistance and so long as the stock remains under longer-term resistance we would not be buyers of this stock at all.  That means, even if the stock falls all the way to longer term support, we would not be buyers of this stock given its trajectory.  However, if the stock breaks above longer term resistance as we have defined it technical buy signals would exist and aggressive investors who are willing to take high risks but with small portions of their portfolio could consider arch coal accordingly.  If the stock reversed down again after triggering based on a break above resistance and fell back below resistance again we would use that as a risk control and exit the position.


Immediately, there are no fundamental or technical reasons to buy Arch Coal.  The stock has been decimated, earnings growth is negative, and on a fundamental basis the stock and the company look like a clear avoid, with one material exception.  Revenue has stabilized and if revenue remains stable we would expect earnings to follow at some point in the near future.  That means we would expect the deterioration in earnings to also subside if revenue continues to remain stable from this point forward.  If that's true, the decimation that has existed in the stock price could be reversed, so that provides upside potential, but this is a very aggressive story and it is not for conservative investors at all.

For those aggressive investors looking for a potential home run, Arch Coal could be that play, but we would only be buyers if the stock breaks above longer term resistance.  Otherwise, avoid it completely.