When a stock has been spiraling down in value and goes into oversold territory, it presents investors with a potential buying opportunity. One way to gauge when a stock has become oversold is by using the Relative Strength Index (RSI), which is a momentum indicator that looks at the past 14 trading days. When there has been excessive selling, the RSI falls lower and once it is below 30, a stock is considered oversold. It doesn't mean a rally is inevitable, but it may be a sign that perhaps there's too much negative sentiment surrounding a stock lately.
Chocolate company Hershey (NYSE:HSY) finished last week at an RSI of 24. It's a rarity for Hershey to fall below a 30 RSI. It's 50-day moving average recently crossed over the 20-day moving average, which is bullish indicator for technical analysts. However, in recent days the stock has been falling sharply despite no adverse press releases to justify such a selloff.
The company last reported earnings on April 27 and Hershey touted strong, resilient consumer demand with sales of just under $3 billion for the period rising by 12% year over year. It also raised its outlook for the year on the strong performance. For 2023, it expects net sales to rise by 8% and reported earnings per share to jump by 15%.
Despite inflation and economic headwinds, the business has been doing well. At 29 times earnings, it is, however, a bit of an expensive stock to buy. Although it's oversold, I would wait to see if there's more softness in the stock price before buying it.
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