The London Stock Exchange (LSEG) share price has pulled back in the past few weeks, moving from the April high of 10,120p to the current 9,162p. This retreat will likely be brief as the company’s fundamentals are still strong and it has slowly formed the bullish inverted head-and-shoulders pattern.
The daily chart shows that the LSEG stock price has pulled back from its April high of 10,010p to the current 9,162p. A closer look shows that it is slowly forming the highly bullish inverted head-and-shoulders pattern.
This pattern’s neckline is at 10,010p, while the left and right shoulders are at around 8,065p, its lowest swing in September last year. The head is at the year-to-date low of 6,630p.
A H&S pattern is one of the most common bullish reversal signs in technical analysis. Its price target is estimated by measuring the distance between the neckline and the head, and then extrapolating it from the neckline.
In this case, the distance between the two is about 34%. Measuring the same distance from the neckline gives it a target of 13,440p. If this happens, it means that the stock will jump by 47% from the current level.
On the other hand, a drop below the shoulder section of 8,084p will invalidate the bullish outlook and point to further downside.
Still, this pattern has formed on the daily chart, which is normally slower than shorter-timeframe charts like the hourly and four-hour charts. This means that it may take time, possibly months for the stock to jump to the target level.
LSEG stock chart | Source: TradingView
Fundamentally, the London Stock Exchange’s business is sending mixed signals. On the negative side, the UK continues to experience an IPO drought. No major company has gone public at the bourse this year.
In contrast, the US markets are booming, with SpaceX, Anthropic, and OpenAI set to go public. Combined, these companies are now valued at about $4 trillion, higher than the UK’s GDP.
On the positive side, the company’s finances are still growing, helped by its data and analytics business. The most recent results showed that its total revenue jumped by 9.8% in the first quarter. Its data and analytics business grew by 5.1%, while FTSE Russell, Risk Intelligence, and Markets grew by 8.8%, 10.5%, and 15.5%, respectively.
Most notably, the company’s subscriptions business is doing well, with its combined growth reaching 6.3%. This is important as some analysts have been concerned that some of its businesses will be disrupted by advanced AI models.
London Stock Exchange’s EBITDA margin continued to improve, helping the management to continue its shareholder returns. It has returned over 4.2 billion to shareholders in the past few years, a substantial amount for a company with a market capitalization of over 42.62 billion.
Still, a major challenge the company faces is that it is quite overvalued. It has a price-to-earnings ratio of 34, much higher than faster-growing companies like NVIDIA and Microsoft. As such, the management will need to supercharge its growth and profits over time.