Carrefour is one of the most powerful distribution companies in the World and probably, the strongest in Europe, where it is undisputed leader in Frace, with the permission of the Schawrz Gruppe (Lidl, Makro) and the English Tesco.
Carrefour, besides, has a strong and growing presence in Latin-American and Asia, where its future hopes lies, especially in the Chinese market.
It is a well known company in Spain since many shopping centres have a Carrefour Supermarket.
Being such a powerful group, with strong financial backing, it is a surprising how bad performance this stock has had in the stock market.
It is one of the world strongest companies with one of the worst 15 years trends, since it has been in a bear market since the year 2000.
Then, what is going on with Carrefour?
Even if we look at the chart with the dividends included the company has had an appalling performance since the year 2000.
If you bought in 2000 at 60 Euros, today you would be 60% down.
Is not it strange?
Specially because we are talking about a company with constant profits.
Although there is something to mention and that is the fact that the net profits of the company have been falling in the last 10 years.
There has no been year with losses but the profits are in a decreasing trend.
As we can see in the table, profits have gone from 2,479 billions in 2007 to 746 millions in 2017. A very significant reduction.
If this trend persists Carrefour will eventually have losses.
Something is affecting the results of this company.
Is it due to the costs or problems in income?
Carrefour financial problems
Regarding costs there is one important issue: the fact that the company is heavily dependent on the French market, where it makes almost 50% of its business.
In this sense Carrefour is not as diversified as it would appear at first knowing that it is present in more than 30 countries.
The problem with France is that it is not a “cheap” country and has a lot of regulations and syndicate costs, which does not make things easier.
Besides, any introduction of a more efficient competition in that market can make the situation of the company to deteriorate ostensibly.
However, I think that the big problems may come from another source.
The fact is that there is a huge competition in the supermarket industry, and it is not easy to compete in international markets for some companies, like Carrefour. For example, this company failed completely in its attempt to conquer the Japanese market.
Another factor, probably more important, is the fact that online commerce is growing at an exponential rate, and this adds more pressure to companies like Carrefour, which have a huge fixed cost structure and depend on the fact that users visit the shops.
Otherwise there would not make sense to have such a big shopping centres.
Why, if people do shopping online?
The problem here is that some big investments in fixed capital are going to be damaged by the growing trend in online shopping, making that a lot of shopping space ends up being useless.
For sure, Carrefour would have liked to know better about this issue so it could have planned its future more efficiently.
It is possible, in this sense, that they are paying the price for miscalculating this.
I do not know, perhaps there are other problems as well, although everything is always related to bad management.
Let us have a look to Carrefour compared to other competitors.
If we look at Tesco, the equivalent of Carrefour in the British market, we can see that both go hand in hand, which means that these two giants are facing a similar problem.
Competitors from Spain, like DIA, show better stock market behaviour, although in this case we are talking about a much smaller company.
Continuing with the comparison, the world leader Wall-Mart has performed much better than Carrefour by far.
The last decade the American giant has multiplied its income while the French company has been stagnant.
This shows a more aggressive policy, and probably better investment decisions, as well as more efficient cost management.
Another important company in the sector, the Australian Woolworths, has performed very well in the last years, much better than its European counterparts.
In this sense, it is a very complicated sector, since many world and European leaders, like Lidl, Aldi or Mercadona do not trade in the stock market, something quite strange for companies of that size.
Carrefour technical analysis 2017
In first place we can see it is a company that trades in a bear market for more than 15 years.
If we follow the long-term trend and have another bear market, the next support should be around 4 Euros, which would be a catastrophic scenario.
As for the bullish side, the stock should rise over 30 to have a chance of starting a proper bull market.
From an investing point of view, a lot of people could be willing to invest in Carrefour thinking that it is “cheap”, but nothing further from the truth.
Seeing the charts and Carrefour’s numbers, especially in the net profit, we can see that there are huge problems, making the case very difficult to invest in the long-term.
As for today the stock continues in a bearish trend since 2 years ago with a moving average of 600 being violated since 2015 July, which is not a good sing whatsoever.
Besides, the MACD, is in negative territory, without any signal of this going to change in the short-term.
The really worrying part of the theme is when we analyze Carrefour regarding the CAC 40.
Because in the last 20 years, previous to 2011, both assets quoted very similarly with rises and falls quite parallel.
However, since 2011, both assets have differed substantially in behaviour, especially in the last 2 years, in which the CAC has risen while Carrefour has fallen. A very worrying signal.
Conclusion, buy Carrefour stocks now?
Carrefour is not an attractive stock to invest in now.
What is worse, the fact is that it is not even good for trading in the short term since the last two years have been a “dead stock”, the worst case scenario for any trader in the stock market.
Sometimes the stocks that fall a lot would give good opportunities to do trading when the market rises again.
In this sense, the only good “rebound” in Carrefour was the one from 2012 to 2015 and even so it was nothing especial.
I do not know, whatever the problem with Carrefour is, I would say that if they want to turn things back and become a bullish stock again they should bet strongly for online shopping in a dramatic way, with very aggressive cost reduction plans, especially of fixed costs.
Another thing to consider is that they should try to expand their international business as to make France less than 20% of their overall income, otherwise they would be too dependent on issues on that market.