What Is Happening to the Fairfax Share Price?

What does FXJ do?

Fairfax [ASX:FXJ] is a diversified media company. It owns print and digital media brands such as The Age, The Financial Review and the Sydney Morning Herald, as well as the Domain Group (real estate advertising), a range of radio stations, regional newspapers and NZ media assets.

Once a highly profitable business, FXJ has spent the past few years dealing with significant structural change. Print media is in decline; FXJ has invested in its digital business to offset that decline.

What’s happening to Fairfax’s share price?

The investment in digital platforms has been successful to some extent. From a share price low of around 35 cents in 2013, Fairfax managed to climb to a high of around $1.10 in early 2015 (see chart below).
A big part of Fairfax’s success has been the growth in the Domain Group. From the first half of 2014, to the first half of 2016, operational earnings have doubled. Domain now accounts for 65% of the earnings of Fairfax’s metropolitan assets, up from 35% a few years ago.

But the market looked like it had priced that growth in last year. Since then, the share price has been steadily moving south.

Fairfax April Share Price

Source: BigCharts

What now for FXJ?

The lacklustre share price performance tells you the market is concerned about where FXJ’s next phase of growth will come from. The Domain Group derived revenue from signing up real estate agents to advertise with it. It has now reached 92% market penetration, which means further growth will rely on additional growth in real estate agencies.

I’m not sure Australia can fit any more in!

But if growth slows or stops at Domain, and the rest of the business is still struggling, then the share price will come under further pressure. I see no reason to own Fairfax here. If the shares fall below the recent lows, at around 75 cents, it suggests much greater share price falls ahead.

Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.

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Greg Canavan

Editor, Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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