Data Insights

Seek is the most oversold stock on the ASX 200 – Where does it go from here?

Tue 09 Jul 24, 12:24pm (AEST)
Seek logo
Source: Shutterstock

Key Points

  • Seek's stock has tumbled 30% since March, entering oversold territory amid a downward spiral in Australian job ad volumes
  • Historical data shows mixed short-term returns from oversold conditions, but more positive trends at 12 and 24-months
  • Seek faces cyclical weakness in job ad volumes, contrasting with peers like REA Group and Carsales, but analysts expect recovery in FY25 and FY26

Seek (ASX: SEK) has wound up as one of the most oversold stocks on the ASX 200 amid a persistent downtrend in one of the business's most important indicators – Australian job ads.

Since early March, the stock has tumbled almost 30%, declining in 15 of the last 17 trading sessions. The successive decline has pushed the stock into extreme oversold territory, with its Relative Strength Index (RSI) now sitting at just 23.3 – a level of weakness comparable with the depths of March 2020.

ANZ-Indeed's Australian job ads declined 2.2% month-on-month in June, down for a fifth consecutive month. The level of job ads are still 17.8% above pre-COVID levels but the trend is quite clear. Separately, total Australian job vacancies were 352,600 in May, down 16.4% year-on-year, according to the ABS.

Source: ANZ-Indeed Australian Job Ads

Historically, there's been a notable correlation between Seek's share price performance and trends in Australian job vacancies.

AUJV 2024-07-08 16-05-16
Australian job vacancies (blue) vs. Seek share price through to March quarter 2024 (orange) indexed to 100 | Source: TradingView

Historic returns from oversold levels

Since 2008, Seek has traded at an RSI below 28.3 – which represents two standard deviations from the mean – only 92 times. And around a third of these instances occurred in 2008-09 and 2020. In other words, you rarely see the stock subject to so much successive selling.

To analyse the forward returns from oversold conditions, we examined the first instance of RSI below 28.3 in each month, which yielded 23 data points. The results show:

2024-07-08 16 28 05-ASX SEK, 1D.csv - Excel
Source: Market Index

Short-term forward returns are relatively lackluster, with mixed success rates. However, the data shows a more positive trend at the 12-month mark, with even stronger performance evident at 24 months.

Cyclical weakness

Seek's first-half FY24 result provided plenty of warning signs, with revenue down 5%, net profit down 24% and a full-year earnings guidance downgrade of 3-15% due to weaker-than-anticipated job ad volumes across Australia, New Zealand, and Asia.

During the February reporting season, Morgan Stanley offered an insightful perspective: "Seek is a very good digital business. Its shares have underperformed peers REA Group and Car Sales over the past 12 months due to Seek's sharp decline in job ad volumes, in contrast to REA and CAR's rising volumes. This disparity is cyclical, presenting an opportunity for when the job market eventually rebounds."

The report further highlighted the contrast between Seek and its peers: "Unlike REA Group and Carsales, which are benefiting from positive tailwinds in real estate transaction volumes and rising new/used car sales, Seek faces a significant headwind with a 20% decline in advertised jobs on its websites."

The analysts expect Australia and New Zealand volumes on Seek to fall 15% in FY24 but recover in FY25 and FY26, up 6% and 4% respectively.

As we head into August reporting season, the market is expecting Seek to report a 4.5% decline in full-year revenue to $1.17 billion and flat EPS growth.

Looking ahead to FY26, consensus forecasts project a 5.9% year-on-year revenue growth and a substantial 21% increase in EPS. However, these projections are heavily dependent on a rebound in job ad volumes. Complicating matters is the growing likelihood of an RBA rate hike in August, which could potentially delay the anticipated turnaround. This might also explain why the short-term forward returns are so volatile.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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