A key level of resistance has formed in the chart of Otis Worldwide Corp. (OTIS). If this level is surpassed a breakout could ensue.
OTIS is the largest global elevator and escalator supplier by revenue. It operates a razor and blade model where it manufactures and installs elevators at a low profit to build an installed base that will provide high profits from service in the years thereafter.
OTIS was spun off from United Technologies in April, as United merged with Raytheon (RTX). Now that it is on its own, the company can focus on long-term growth through cost cutting and market share gains. The company has a 17% global market share and is making inroads in China, the world’s largest elevator market, with its Internet of Things (IoT) Otis One initiative.
As of the end of its most recent quarter, the company had $1.7 billion in cash, compared with long-term debt of $5.5 billion. Though the company has a current ratio of 1, which indicates it can meet short-term obligations.
The company is expected to grow earnings 6.5% next year and at an average of 8.63% over the next five years. Revenue is expected to grow 4.5% next year. The company is a tad overvalued with a P/E of 38.
Its stock has shown bearish near-term momentum, but is up considerably over the past year.
Take a look at the 1-year chart of OTIS below with added notations:
Chart of OTIS provided by TradingView
Since IPOing last year, OTIS has been on a continual trend higher, with the typical pullbacks along the way. However, the stock has recently hit the $68 level (red) as key resistance, which is also the 52-week high barrier. A break of that $68 mark most likely means another long leg higher for OTIS.
The possible long position on the stock would be on a breakout above the $68 level with a protective stop placed under it.
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Christian Tharp, CMT
OTIS shares were unchanged in premarket trading Wednesday. Year-to-date, OTIS has declined -3.43%, versus a 1.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp, CMT
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...
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