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Pandora: Music To The Ears Or A Box Full Of Trouble?

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The stock of Pandora Media (NYSE: P) is sitting at a fork in the road.

One path leads to rainbows and riches; the other leads to a multitude of danger and misery, at least for the bulls.

Bulls Attracted To Pandora's Siren Song

Those bullish of Pandora's stock may say the company is sitting pretty with no debt and lots of cash, even as it has not yet fully tapped into the potential of its business model. The very hopeful bulls throw in the idea that Pandora is a great buyout candidate for one of the big players in the online music business.

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Bears Smell Blood

The bears are quick to point out to the bulls that Pandora's valuation as measured by the price-to-book and price-to-sales ratios is extremely high and that only beyond-perfect execution of their business plan will justify today's valuations. Given the company's failure to satisfy investors in recent quarterly reports, is it reasonable to expect that they will be able to produce such operational perfection?

The bears are also salivating at the very iffy technical set-up (see chart below) and the conspicuous underperformance of the stock versus the broader market in general and the online media group in particular.

Who Will Win Out?

The bulls will be feeling much better about things if Pandora can close on a daily basis above $28.96 and will be shouting gleefully from the mountain tops if the stock closes above $30.05. If those hurdles are cleared, the next stop for Pandora stock is $32.

The already emboldened bears will be in full attack mode if the stock continues to be weak, especially if the August 1 intraday low of $24.11 is violated (on a closing basis) on the downside. The downside target if this key support level fails will be $20.35 to $21.61 in the near-term and, eventually, all the way down at $17.44.

Technicians say to buy if….

  • Either a breakout above $28.96 on a closing basis occurs, with stops in place on a close back below that level
  • A pullback to support at $24.11 occurs, with stops in place on any close below that level

Technicians say to sell…

  • On a short-term bounce to $27.75 with stops in place on a daily close above that level

Disclosure: Sea Change Capital is short of Pandora stock in the Sea Change Portfolio, LP at the time this article was published.

Stock chart: 
Stock chart

Posted-In: PandoraTechnicals Movers Trading Ideas Best of Benzinga

 

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