Restoration Hardware Pre-earnings Analysis:
Chart done on daily timeframe. Apart from William-Sonoma, furniture and decor companies have been trading flat for the past six months, but RH’s earnings this week may get things moving. The company’s last earnings report came in at a surprise loss 0.42, expectations were a positive .91. Despite the big miss, their stock still jumped, but it hasn’t been able to get above those highs since, so we’ll likely see a big move on this report. The company is estimated to report a positive EPS of 1.72 per share, which is a hefty target, but holiday season may help get them there. Analysts expect RH’s revenue to grow to $777.8M for the quarter, but still down from 2022’s highs, up keeping the trend of quarterly decline for the company.
Option chain analysis:
The option chain ending on March 28th currently reflects an implied volatility reading of 165%, which is about $30 implied move on the underlying stock. The direction of the move will depend on the earnings results.
PayChex (PAYX) Pre-earnings Analysis
Chart done on daily timeframe. PayChex investors are awaiting the company’s next earnings release, which is scheduled on April 2nd before market open. The human capital management company has high expectations this earnings season as analysts have higher profitability estimates than the last four quarters. The company topped three out of the last four estimates in Q2 23, but generally speaking they’ve grown profitability consistently over the past five years. Revenue has also grown steadily as the company takes on more of the market share from big competitors like ADP and Paylocity. Their price to earnings ratio is currently 26.87, which is considered a bit expensive, but in-line with the industry’s leader ADP at 28.82. Free cash flow is also at a positive 1.86B, giving the company a modest cash cushion if emergencies arise, or to increase their dividend. The most notable thing about PAYX for investors is probably their dividend so their focus will remain on revenue and free cash flow, PAYX just needs to keep doing what it’s doing to keep investors happy.
Option chain analysis:
Considering their revenue estimates are above the last four quarters, PAYX will likely have a strong positive reaction if they beat expectations. Their next option expiration is April 19th, which is currently reflecting an implied volatility reading of 29.67%. This translates to about a $7.44 move on the underlying stock. The direction of the move will rely on the earnings outcome.
UNF Pre-earnings Analysis
Chart done on daily timeframe. Unifirst Corporation has positioned itself nicely to take a small chuck of a multibillion dollar industry, an industry that is consistent on both the consumer and producer’s end. This has helped it build its revenues steadily over the last seven years, but unfortunately the operational costs eat away most of the profits, leaving them with profit margins that often vary based on labor and material cost factors. This explains the decline in profits UNF has seen in the last five years as inflation ate away at its profits along with rising interest rates, and analysts seem to be understanding of that as they’ve adjusted their profit expectations lower. Quarterly EPS for UNF are estimated to come in at $1.41 this quarter, far lower than last quarter’s $2.38 report. This could be a good and a bad thing for them, because an earnings beat alone is not good enough to push the stock, they’ll need to beat and come close to their last report for buyers to take serious interest. This year’s profitability will also be in focus as investors are already nervous of their declining profits.
Option chain analysis:
UNF is a very low volume stock, which means its options chain doesn’t have much volume either. Liquidity is very low so it will be difficult to enter and exit options at a desired limit price and movement will be very unusual. Their nearest option chain expires on April 19th, 2024 and it currently reflects an implied volatility reading of 26.60%, which translates to about a $9.56 move. The direction of the move will be based on the earning’s outcome.
SNX Pre-earnings Analysis
Chart done on daily timeframe. Synnex Corporation is set to release its earnings this week. Investors will be excited to hear about Destination AI, which is the company’s artificial intelligence analytics system. Synnex does business with company’s such as AMD, Nvidia, Oracle, Google…etc., many of which have shown substantial growth over the past year; however SNX’s revenue has not reflected that same growth. The company’s year over year revenue fell by about 8%, which could be attributed to higher interest rates and geopolitical pressures. Overall their revenue has still grown more than 100% to 58B in the last four years so a small slowdown is reasonable, but these earnings will be critical as they could set the stage for the year. Synnex beat profit estimates on three out of the last four quarters, expectations for this quarter aren’t too high so they will likely come in line. Analysts see profits coming in at 2.71 per share compared to last quarter’s 2.98 performance.
Looking at its valuation, SNX is trading at a price to earnings of about 16, placing it on the cheaper side of the current average technology P/E. In market where many stocks are overvalued, investors are looking for companies like this to add to their portfolios for the fairly new year, but it depends on their earnings statement. Buyers will be focused on revenue guidance, they want to see growth, and profitability. Of course artificial intelligence will be a big topic too.
Option chain analysis:
SNX is a low volume stock which means it doesn’t get that much attention. Its nearest option chain expiration is on April 19th, 2024 and it currently reflects an implied volatility reading of 33.83%, which translates to about a $7.50 move. The direction of the move will be dependent on how buyers and sellers react to their earnings.
Exxon Mobil Corporation
Chart done on daily timeframe. Trading at a price to earnings ratio of only 12.72, Exxon Mobil is a bargain purchase that investors won’t ignore for very long. The energy giant grew its revenue rapidly during the height of the Ukraine war as demand skyrocketed along with prices, but Covid slowed revenues down, which is why their stock went into a deep slumber. Although revenues have declines for the last four quarters, the company still pulled more than 300B in 2023, 36B of that was net profits. The company’s balance sheet is also at a healthy 2:1 ratio, with 376B in assets and 163B in liabilities. Last but not least, they have a positive free cash flow of 33B, safeguarding them against slowdowns and competition. At this price, Exxon is a solid purchase for a long term portfolio that’s looking to diversify into energy/oil companies. Even if the stock takes times to come around, Exxon’s investors are paid a strong dividend to make their investment worth their while.
Keep in mind energy/oil stocks move in cycles and often see lots of ups and downs, but the strong names generally trend up over a slow period.
]]>Williams-Sonoma Analysis
Chart done on hourly timeframe. What we’re seeing happen with Williams-Sonoma is very similar to what we saw happen with SMCI this year. Both companies are “low-float” companies that have about 10-11% in short float. Both companies have less than 60M shares available to the public market, which means it doesn’t take much volume to push them up. Considering that 10% of those shares are being shorted, a move up can cause a short squeeze and rocket the stock higher.
At this point there’s not telling when WSM will stop its rally and it’s a very high risk high reward trade. You can use the levels above as guidance if you’re looking for a trade.
]]>Carnival Corporation Pre-earnings Analysis
Chart done on daily timeframe. Carnival investors are preparing for the company’s quarterly earnings last this month. The attention will likely be on their ability to meet profit expectations because they struggled to stay positive in 2023. Their quarter over quarter earnings shifted from negative to positive and back to negative again last year so there’s a lot of uncertainty going into these earnings. Although it seems like a lifetime ago, but the pandemic’s toll is still weighing on cruise lines, but they have generally been moving in the right direction. Despite the profit inconsistency, the company’s revenue grew by nearly 100% from 2022 to 2023, reaching about 21B for the year. The company’s entire valuation is about 21B, so they are earning also much revenue as their market value, which could spark some interest. If CCL does well on these earnings, especially in profitability and guidance, it will likely finally breakout of the channel it has created all year long.
Option chain analysis:
CCL’s earnings are set for the 27th. The next option expiration after that is set of the 28th, which currently reflects a 95% implied volatility. That translates to about a $1.75 move.
]]>Nike Pre-earnings Analysis
Chart done on daily timeframe. Nike is set to report its quarterly earnings today after-hours and expectations are lower than the last three quarters. This means analysts expect Nike’s quarter to come in softer, despite holiday season sales during December. Nike’s last quarter EPS came in at 1.03, analysts are only targeting .69 this quarter. So if Nike beats only modestly beats estimates, it may not be enough to push the stock higher. It would need to report closer to its previous quarter’s EPS to see a big jump. A miss on earnings could be detrimental in the short-term because expectations are already so low.
Consumer spending on discretionary items has soften in recent months, which could spell trouble for Nike. Adidas, Nike’s biggest rival, recently reported lower guidance for 2024 due to a decline in demand. This could foreshadow Nike’s report.
Overall, Nike is a solid company that has shown revenue growth during the toughest times so I wouldn’t count it out long term, but the short term will heavily be dependent on these earnings. Nike’s stock slipped strongly on their previous earnings, so these earnings to start the year could set the tone for the rest of it.
Option chain analysis:
Nike’s option contracts expiring on March 22nd currently reflect an implied volatility reading of about 163%, which translates to about a $7.60 move. Next week’s contracts are reflecting a $8.67 move.
]]>Lululemon Pre-earnings Analysis
Chart done on daily timeframe. Lululemon is set to report earnings this week and expectations are extremely optimistic. Analysts are estimating nearly 100% quarter over quarter growth in profits, likely because this was their holiday quarter. The athletic wear giant has proven over and over again that it can top expectations, but many are questioning this quarter’s performance considering the slowdown in consumer discretionary spending and rising competition. LULU’s stock has grown more than 50% in the last 12 months, leading its valuation to around 59x, double the valuation of Nike and about four times higher than the healthy average. This makes this earnings report extremely important to how investors may see LULU for the remainder of the year. There are only two ways to adjust LULU’s valuation to a more “reasonable” area, they either report strong earnings per share/profits, or the stock needs to drop. If they beat their earnings this quarter that would be a substantial feat that could justify the valuation in the shot term. Guidance will also be watched closely because many companies have reported soft guidance. Investors want to see strong guidance to continue believing in the stock at these highs.
Option chain analysis:
LULU’s quarterly options, which expire March 28th, currently reflect an implied volatility reading of 86%, which translates to about a $48 move. Which direction will depend on the earnings results and call.
]]>FedEx Pre-earnings Analysis
Chart done on daily timeframe. FedEx is set to report their first quarter earnings this week, which will be watched closely since they missed their last quarter estimates. Fierce delivery competition from Amazon and weakened demand may still be a theme for them this quarter, and if it impacts their guidance for the year then it can hurt their stock in the short term. Despite the shift in demand and competition, FedEx revenue has still grown considerably in the past five years, and their valuation is at an attractive number. Trading at a price to earnings ratio of 15, FDX is a cheaper buy than UPS. The company is also equipped with a healthy balance sheet and positive free cash flow.
Profit estimates this quarter are 3.55, lower than last quarter’s 3.99 performance. Considering this report will include the month of December, we expect FedEx to surpass expectations. Their valuation is attractive so their earnings may bring positive attention if they beat, boosting the stock higher over the next quarter.
Option chain analysis:
Options for the week expiring on March 22nd currently reflect a 86% implied volatility reading, which translates to about a $16 move.
Since FDX is an opportunity at a long term play at this valuation, it is one to consider for a shares entry as a multi-month position of a LEAP call play.
]]>UiPath Post Earnings Analysis
Chart done on daily timeframe. UiPath had a pleasant surprise for investors this earnings season as the company reported a 46% quarterly earnings surprise. The technology company’s earnings per share came in at $.22 per share, far above the $.15 estimates. This is the fourth quarter in a row where the company beats EPS, which could explain why the stock has nearly doubled in the last 12 months. Despite the improving earnings and bullish activity, the stock is nowhere near its IPO highs of 90.00 from 2021, but that’s the case for many stocks that IPO’d during that period. Companies that went public in 2020 and 2021 had extremely inflated numbers and so they were in desperate need of a correction, which is exactly what happened to Path. Investors needed to see more evidence of this company being worthy of a buy before fully committing to it. Now that we’ve gotten a few years of the company’s performance, we can finally get an idea of how well they’re performing.
Revenue growth has been notable, from 336M in 2019 to 1.31B in 2023. Net income has also moved in the right direction, but it is still operated at a negative for the full year of 2023. Q1 of 2024 in specific came in at a positive net income, which could foreshadow a good year for PATH. The company’s performance is impressive, so there may be an opportunity for more upside in the coming quarter, but investors had a knee-jerk reaction to them missing guidance expectations. We’ve highlighted some levels on the chart to use as guidance.
]]>Lennar Post-earnings Analysis
Chart done on daily timeframe. Shares Lennar are pulling back from their all time highs after the company reported its first quarterly earnings for 2024. Q1 revenue came in at 7.31B vs the 7.39B expectations, but the homebuilding giant still grew its revenue by 12% from same quarter last year. Home deliveries increased by 23% and new orders increased by 28%, which proves resilience in the housing market and endless opportunities for Lennar. Worries about interest rates have been high, but Lennar’s leadership assured investors that they’re “fluctuating within a manageable range”.
The decline in Lennar following their earnings release be because the earnings were already priced in. The stock has been making new all time highs month over month so it could finally be time to take a breather. Last quarter’s revenue was above 11B so the decline to 7B this quarter may have come as a shock to investors, but nonetheless it’s still a decent number. Net profits also hurt this quarter because of the higher interest rates, which naturally scares investors, but Lennar is in a position that allows it to bounce back when interest rates come down.
All in all, we’re bullish on Lennar in the next 24-36 months, but a short term correction is due.
]]>Blink Charging (BLNK) Pre-earnings Analysis
Chart done on hourly timeframe. Electric vehicle and charging station companies were amongst the leader to the downside in the correction we’ve seen in the last 24 months. As interest rates surged and demand for electric vehicles slowed, companies like Blink have moved their way to all time lows in recent months. Blink’s 2021 highs were never justified given the company’s revenue is still below 100M annually. This is a company’s that’s never been profitable and is likely still far away from being positive net. Nonetheless, the electric vehicle market is still young and has a lot of room for growth, and Blink has established itself as a key player of charging stations. The current valuation and market presence may bring some buyout considerations from larger names in the future for the company. As far as these earnings specifically, analysts are expecting the company to still report negative EPS, but revenue is expected to grow. PLUG’s earnings recently showed the company missed EPS by nearly 100%, which could foreshadow what we see from BLNK. The only positive the company may have going for them is the expected decline in interest rates. Young companies like Blink are very sensitive of interest rates so they might see stronger guidance on an interest rate cut if it happens.
Option chain analysis
Blink’s option chain expiring March 15th is currently reflecting a 213% implied volatility reading, which translates to about a $.58 move on the underlying stock.
]]>Oracle Pre-earnings Analysis
Chart done on daily timeframe. It’s been nearly a year since Oracle’s stock made the significant move above 100.00, but buyers haven’t been able to bring enough strength to continue the push. Oracle reached a high of 128.25 in 2023 and has lagged behind the market rally to start off this year, but earnings could be a catalyst for them to finally make a move. The database software company is set to release their Q3 earnings results and like most other tech companies, the big focus will be around artificial intelligence. Oracle has an advantage over many other new AI companies because it is an established company who’s already trusted by many enterprises. Revenue patterns over the last seven years have reflected slow and steady growth for them, so the introduction of artificial intelligence is only likely to help them boost guidance. Net income and free cash flow have also been growing, which is attractive to investors. The downside about ORCL’s stock is its valuation at 31x P/E. A healthy P/E is usually between 15-25 so Oracle will need to surpass profit expectations substantially to justify the current stock price. Analysts are expecting EPS to come in at 1.09 for the quarter, slightly higher than the previous result of 1.05. Given the excitement around AI, and the modest analysts estimates, ORCL should meet these expectations.
Option chain analysis
Options expiring on March 15th are currently reflecting an implied volatility reading of about 102%, which translates to about a $10.00 move in the underlying stock. So if Oracle meets earnings and posts strong guidance then the stock will likely push to ab out 123.00. If they miss then the downside target is about 103.00.
]]>ULTA Pre-earnings Analysis
Chart done on hourly timeframe. ULTA is set to report earnings this week and they have a hefty target to reach as profits are expected to rise by 50% quarter over quarter. The beauty giant will be reporting their holiday sales numbers so the optimistic estimates are reasonable, but their stock is trading around all time highs so even if they beat, it might already be priced in. The company’s revenue has also declined quarter over quarter in 2023, potentially foreshadowing an earnings miss. Despite a decline in revenue and net income, ULTA shares jumped after their last quarter earnings and continued rallied until about a week ago. There doesn’t seem to be a good reason for the full quarter rally so we’re skeptical going into these earnings. The company is currently trading at a price to earnings ratio of 22, which is on the higher end of the healthy 15-25 range. They’ll need to either come down in stock price, or raise their net income in order to justify the current valuation.
Options chain analysis:
This week’s option chain is currently reflecting a 92% implied volatility, which translates to about a $46 dollar move. That means ULTA could push to around 570.00-580.00 on good earnings, or decline below its 515.00 support. If it stays flat then all OTM contracts will be crushed.
]]>Dick’s Sporting Goods (DKS) Pre-earnings Analysis
Chart done on hourly timeframe. Dick’s Sporting Goods has started off 2024 with a near vertical rally, moving the company to a new all time high, and nearly doubling it from its 52 week lows. Because of their niche market position, Dick’s has been able to maintain strong presence in the retail sector unlike many other retailers who have lost to e-commerce. The company revenue is steady for a retailer, and they’ve managed to stay profitable over the years. Their balance sheet is also healthy and free cash flow is reading at a positive number. This explains why investors stepped in when DKS was trading around the $100.00 mark, when its P/E ratio was only 8, now 16. Coming into these earnings, the question is if they can once again meet estimates. Markets are expecting about 30% growth in quarter over quarter profitability, about 3.34 EPS. Coming out of the holiday quarter this might be attainable for the company, but we’ll find out on 14th.
Option chain analysis:
This week’s option chain is currently reflecting an implied volatility reading of about 110%, which translates to about a $18 move on the stock. That set’s DKS up to either move to around 200.00 on good earnings, or below its 165.00 support if they miss. If they stay flat then OTM options to both sides will be crushed.
]]>Broadcom (AVGO) Post-earnings Analysis
Despite ambitious targets, Broadcom managed to beat quarterly earnings on Thursday and surpass estimates; however the stock is down in after-hours. The decline in the stock could be because the company’s leading product growth was in their software revenue, not their chip revenue. Markets are extremely bullish right now, but the biggest movers have been the companies reporting strong artificial intelligence chip growth, and even though Broadcom did that, it wasn’t enough for investors. Nonetheless, the semiconductor giant still reported a great quarter overall, coming in at $10.99 earnings per share and giving a guidance of $50B for the full year.
Long term outlook:
Across the board, semiconductor companies are trading at expensive multiples, far above the healthy 15-25. Broadcom in specific is trading at a 41 P/E multiple, higher than the average, but much cheaper than competitors like Nvidia and AMD. For now, markets are excited about semiconductors and AI, so there’s a chance of a higher push, but eventually a correction will bring these stock prices to more reasonable multiples.
Technical analysis:
The after-hours move on Thursday brought shares of AVGO to a low of around 1280.00 before it bounced, so we’ve placed a support at that level. Buyers need to defend that going forward to avoid a sell-off below it. The closest resistance on AVGO is their all time highs level at 1438.17.
]]>Costco Post-earnings Analysis
Costco reported quarterly earnings after the bell Thursday and while profits exceeded estimates, their revenue didn’t come in line with expectations. The wholesale retailer generated revenue of $58.44B for the quarter, slightly below the expected $59.1B, but still an increase from last quarter’s numbers. Profits were also up to $3.92 per share, beating the $3.62 estimates. E-commerce was a highlight for the company as it reflected online growth by 18.4% YoY, helping them compete against Amazon and Walmart. All in all, Costco reported a strong quarter, but shares fell on the revenue miss. At these highs any scent of bad news can drive traders to take profits, but the general trend remains bullish so there’s a chance that buyers come in at this dip in the short term.
Looking at the long term, Costco has outpaced the S&P significantly this year so a correction is due. The company is trading at a 52 price to earnings multiple, significantly higher than competitors like BJ Wholesale Club, Walmart, and Target. A healthy P/E is usually between 15-25 so we’re looking at a significant correction on this name when markets correct overall.
Technical analysis:
In the very short term, Costco may see some post-earnings activity that brings volatility. The after hour lows from Thursday were around 745.00 so we’ve placed a support level there. Buyers need to first defend that level to see a potential bullish reversal.
]]>Albemarle Corporation. Depository Shares Update and Technical Analysis
Albemarle is starting off March by giving back nearly half of its February gains after the company announced a depository shares offering valued at $1.75B. The stock surged more than 20% last month due to lithium price increase, but investors are now afraid that the company is short on cash. Looking at their annual revenue, they’re growing in a healthy direction, growing 31% YoY in 2023. However while analyzing their net income, we see the company has been declining in profitability. Their first quarter performance last year reflected a positive $1.16B in net income, but by Q4 they moved to nearly -$1B. While their balance sheet is healthy with $18B in assets and only $8B in liabilities, their free cash flow has been moving south, reading -$823M for 2023. All in all, the depository shares seem like a plea for help to investors, causing this panic selling.
Technical analysis:
ALB’s move in February placed its daily candle above the 50 and 100 day moving averages (Not shown in chart above). These timeframe are often used by institutional investors as guidance. Despite today’s pull back, the stock is trading day above those levels, you can use them as your bullish support.
]]>Marathon Digital (MARA) Post-earnings Analysis
Chart done on hourly timeframe. Marathon Digital reported their fourth quarter earnings earlier today and numbers exceeded expectations across the board. The company reported a surge in revenue for the quarter to $156.8M vs. the $148.8M estimate, and net income came in at 66 cents a share, finally moving the company into positive profit territory. MARA’s investment in mining equipment and advancement of its technology helped it boost its Bitcoin mining abilities significantly year over year from 1,562 in the fourth quarter of last year to 4,424 this quarter. Efficiency also improved by roughly 20%, making their earnings results stellar all around. Despite the earnings beat, however, shares of the company tumbled from their highs in after-hours trading. This could be because the price was already baked in to the market given the fact that shares have nearly doubled just in the last month leading up to earnings. Nonetheless, with Bitcoin trading near all time highs, and excitement around crypto coming back, MARA still has a fighting chance of reversal back up and pushes back towards the 35.65 resistance.
Keep in mind MARA and other crypto related companies will likely always rely on crypto markets for their sentiment so if investors turn pessimistic on Bitcoin again then they will likely do the same towards MARA and its likes.
]]>CELH (Celsius) Pre-earnings Analysis
Chart done on daily candles. CELH is set to report earnings this week on Thursday before market open and analysts are eager to see if the company can once again dominate the quarter like they did on their last report. Last quarter, analysts estimated the company would report .16 in EPS, but the company reported .30 instead, about 100% more than expectations. This quarter’s expectations are once again only .18 in EPS, but rising competition and food costs could reflect this time around; this could explain why analysts didn’t raise expectations much for the quarter. Celsius is in a very competitive market and their future is likely fated for a buy-out from giants like Coca-Cola or Pepsi, but until then, they’ll have to keep sales strong to have a chance at long term survival.
Technical analysis:
The stock has rallied since the start of the year and is continuing to make new 2024 highs heading into earnings, which means they’ll need to post very strong earnings for buyers to justify the price near all time highs. This makes these earnings especially dangerous. The options market is currently reflecting an implied volatility reading of 219%, which translates to about a $9.00 move. A straddle could work with a 77C and a 60P, but you’d be risking an implied volatility crush if the stock doesn’t give at least a $9.00 to either side.
]]>Autodesk Pre-earnings Analysis
Chart done on daily timeframe. Autodesk is one of a few software companies that’s set to report earnings this week and investors are eager to see if they can followthrough as they did on their last earnings report. ADSK’s previous report pushed shares out of a multi-year base after the company’s net income grew more than 30%. The post-earnings rally moved shares to a new 52 week high, which means they need to report strongly again for buyers to justify their current valuation. The company is currently trading at a price to earnings ratio of 60x, which is about four times higher than the healthy average, so this earnings season the main focus will be on profitability and guidance. Last quarter’s EPS estimates were 1.28, which the company beat by .05, coming in at 1.33. This quarter’s EPS estimates are 1.30, which should be attainable, but investors will likely need to see a much higher number to buy up the stock further.
Autodesk’s technology was used in the recent Super Bowl, which may have given them credibility and brought more customers to them. This specific reason is why we expect them to easily achieve earnings and give upbeat guidance. It is reported that most of the Super Bowl commercials we saw this year were designed with the help of Autodesk software, making them a key player that could impress investors this quarter.
Option chain analysis:
Autodesk is set to report earnings on February 29th, one day ahead of the options expiring on March 1st. Those contracts are currently reflecting an implied volatility reading of 86%, which translates to about a $17 move. If the company beats expectations and provides strong guidance then we expect the multi-year base breakout to continue towards 286.00-288.00. If they miss then we’re expecting a move down towards their 225.00 support.
]]>Dollar General Pre-earnings Analysis
Chart done on daily timeframe. Dollar General enjoyed peak performance when inflation ripped higher and consumers were forced to find bargains, but their glory days became history when consumer optimism returned about the economy. Despite their ability to continuously deliver strong revenue, the company has fallen more than 50% from its all time highs, and this likely can be attributed to their net income inconsistency. DG’s net income fell significantly in Q1 of 2023 and continued to slide through the year, with it the stock fell. The correction they saw brought their price to earnings ratio down to 16, about half of what their most prominent competitor, Walmart, is trading at, but does this make DG a buy going into their next report?
We’re seeing opportunity in the discount store giant because of their ability to constantly grow revenue. Retailers of all sizes have a history of inconsistency when it comes to net income, so DG’s struggle in 2023 shouldn’t be the nail the coffin. While analyzing their balance sheet and cash flow statements, we see the company is currently in healthy standing with a positive asset to liability ratio and free cash flow. DG also pays a dividend to their shareholders, which is a good sign that they’re managing their revenue sufficiently. Quarterly revenue and EPS is expected to rise this quarter, so analysts are optimistic about their results.
Option chain analysis:
The company is set to report earnings on March 14th, one day ahead of the monthly option expiration. Options expiring on the 15th of March are currently reflecting an implied volatility reading of 62%, which translates to about a $15 move. Retailers don’t often move big on earnings (unless they miss severely) so we’re not surprised to see such a small expectation, especially while most of the attention is on tech stocks.
Going into these earnings, our outlook is neutral. With EPS estimates set at 1.74, it may be difficult for the discount retailer to meet since they only reported 1.26 last quarter.
]]>Adobe Pre-earnings Analysis
Chart done on daily timeframe. One of the most prominent creative software companies is set to report earnings next month and analysts are eager to see what they bring in Q1 of 2024. With excitement around artificial intelligence overtaking the market, investors will be watching for Adobe’s comments on their new Generative AI products. Historically, the company has adapted very well to technological change, but the rise of Generative AI can pose a threat to Adobe’s products. Consumers no longer need sophisticated skills to operate Adobe’s Creative Suites in order to produce/edit images and videos, they can simply use other AI software and type in exactly what they want to reach the final product.
Adobe also recently terminated a 20B dollar deal to purchase Figma, which is a very popular web application in the collaborative design space. The decision to end the deal saved them 20B, but investors were looking forward to the additional $400M (and growing rapidly) in revenue, 90% of which would’ve been profits for Adobe.
Despite gruesome competition, Adobe has steadily grown by double digit percentage points year over year, reaching 19.37B in revenue in 2023. Their balance sheet has a positive ratio of 2:1 in assets vs. liabilities, and their free cash flow is strong at around 7B. The biggest outlier for the company is their hefty valuation, which trades at a price to earnings multiple of 46, about three times the healthy average. The reality of the current market however doesn’t seem to think twice about valuations, especially for anything involved in AI. Companies that mention artificial intelligence during their earnings have seen strongly positive reactions, and given the fact that Adobe is a leader in their space likely sets them up for a push towards their 52 week highs.
Option chain analysis:
Adobe is set to report earnings on March 14th, a day before monthly contracts expire. The options expiring on the 15th currently reflect an implied volatility reading of 51%, which translates to about a $50.00 move. If Adobe can speak positively about their new Generative AI products and meet expectations then it’ll likely move to reach a level around 650.00. An earnings miss, or a market downturn can lead them towards their critical 497.00 support.
]]>Nvidia (NVDA) Pre-earnings Analysis
The semiconductor giant, Nvidia, is set to report to earnings this week and their outcome is set to impact their entire industry. Over the last 12 months, Nvidia has become the face of artificial intelligence and innovation within its sector, which has exponentially moved its stock higher. The excitement around artificial intelligence drove the entire semiconductor industry to very tenacious multiples, so Nvidia’s earnings this week will either justify those multiples or it will crush them. Nvidia is currently trading at a price to earnings ratio of about 95, which is 6-8 times higher than the healthy average. This means Nvidia needs to report numbers far above expectations to bring down the multiple. Nvidia has done that repeatedly over the last 12 months so it’s not farfetched for them to meet the optimistic estimates. Between Q1 of last year to Q4, Nvidia’s revenue grew over 200% and their profits 12x. This brought their earnings per share 3.77 in Q4, and analysts are expecting the number to grow to 4.20 in Q1 (These coming earnings).
Given the demand for semiconductors and artificial intelligence chips, we expect Nvidia to meet expectations and continue their strong projections. All of Nvidia’s peers within the Industry have successfully met estimates and posted strong projections for the year, Nvidia will likely follow suit. One advantage Nvidia has over its competitors is also their involvement in cryptocurrency mining and video games. Cryptocurrency in specific has had a very strong start to the year so demand for processors has likely increased with mining.
Option chain analysis:
As of now, Nvidia’s options that expire this week on February 23rd, 2024 currently have an implied volatility reading of 155%, which translates to about a $79.00 move, which direction that turns out will depend on the earnings they post. If Nvidia stays flat then both sides of the option chain will be crushed.
]]>RIVN
Chart done on daily timeframe. Shares of Rivian are trading near their all time lows ahead of their quarterly earnings. Investors of the company who purchased shares since their public market debut have been on a wild ride. Rivian shares reached a high of nearly 200.00 at one point before entering a long correction period that seems to still be going on. Electric vehicle companies as a whole experienced a similar path that Rivian has as sales fell and demand fluttered, but Rivian is one of the few names that has a standing chance in the future of EV. The consumer direct vehicles have surpassed expectations, reaching more than 50,000 in 2023, but unfortunately their profitability moved the other way. Like many other companies in the space, Rivian is yet to see profitability and seems to be far from it, which has been the historical trend for vehicle manufacturers. Tesla, the leading EV maker, suffered for many years before finally turning a profit a few years ago, and even since then their profitability has been shrinking.
With that being said, the main focus for Rivian investors should be revenue trends. Young companies generally suffer years before they turn profits, especially companies in a new space or an industry that has expensive parts and manufacturing. Rivian’s revenue has grown consistently over the last four years and as long as they keep that trend then they have a fighting chance. Their partnership with Amazon is the biggest highlight we can make in terms of their survival. With a 17% stake, Amazon is unlikely to let Rivian fail as they have already began using their vehicles as delivery trucks.
All in all, Rivian falls under a high risk high reward investment and shouldn’t take up a large portion of a portfolio. The stock can still come around and 5x or 10x over the next decade, but they will need to maintain and grow their Amazon relations and grow the demand for their vehicles across the globe.
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Chart done on daily timeframe. NIO is another Chinese stock that’s become a victim of geopolitical tensions and unrest. Like many of its China based peers, the company has impressive numbers, but investors are just too uncertain to buy. This could be seen as a major opportunity because chances are, tensions will either simmer down, or Wall Street will find them too good of a risk/reward investment to pass up. NIO in specific has grown its revenue from under 1B in 2018 to over 7B last year. Their market cap is only 9B currently, meaning they’re close to grossing as much as revenue as their market valuation. Their balance sheet has a positive asset to liabilities ratio, but cash flow and profitability are negative. NIO is fighting an uphill battle being fairly new in the electric vehicle field. They have made their mark, but it’ll likely take them years to turn any profit, if they ever do. Tesla only became profitable a few years ago, and they have slowly shrunk their profit margin in recent quarters. It is difficult to establish yourself in such a competitive field, but nonetheless, NIO still managed to deliver 160,000+ vehicles last year. There’s hope for them, but chances are the tensions between China and the U.S. need to calm down before confidence grows for buyers.
We see Chinese stocks as a big opportunity right now because many are undervalued. The chances of them ever getting delisted are very low, but should still be kept in mind when positioning. Only a small portion of a portfolio should be kept in foreign investments in general because they’re high risk high reward, but the reward is worth it at these valuations.
]]>Airbnb Post-Earnings Analysis
Chart done on daily timeframe. It’s always a challenge to identify a healthy valuation for a young company like Airbnb, but now that they’ve had about seven years of public earnings, we’re starting to see what the company is capable of. Since its initial public offering (IPO), Airbnb has grown its annual revenue by 400%, all while slowly crawling their net income to a positive territory. The company’s bookings have grown significantly and leadership is optimistic they’ll continue penetrating international markets in the coming quarters. New international markets means more revenue for the company, and based on the way their leadership have managed revenue in the past, they’ll likely continue growing everything from their income statement to their balance sheet in a healthy direction.
Based on the current stock price and income, the company’s price to earnings ratio is currently around 18 (TTM), falling right in the healthy range of 15-25. However if revenue continues growing as at has, their valuation will actually be considered cheap.
Investors who bought Airbnb since the IPO date haven’t seen much of a return given the pandemic challenges and aftermath that put pressure on the travel industry, but as Airbnb continues delivering strong quarters, we expect the stock price to get a boost too.
]]>AVGO
Chart done on daily timeframe. Semiconductor companies have been big winners in the last 12 months. While most of the focus has gone to Nvidia and AMD, Broadcom has swiftly moved its way to all time highs, gaining more than 100% since this time last year. The rise in market valuation has moved its price to earnings ratio to 39, doubling its valuation from last year, and making the stock more expensive than the healthy average of 25-35. However when we compare AVGO to NVDA, AVGO is still far cheaper in terms of price to earnings ratio. Broadcom brings in more revenue and offers a healthier balance sheet, which explains the attention it has received in the last year. With earnings around the corner however, it will be put to the test to see if the numbers can justify its valuation. Analysts’ estimates are roughly the same as last quarter, which the company beat. With the demand in semiconductors rising, AVGO will likely continue to receive bullish attention.
Technical analysis:
As of now, buyers are controlling the general trend. If you’re looking at the daily chart, you can utilize the 10/20 MA lines as support points to guide you on entry. As long as it holds those levels then buyers have a higher probability of taking it higher. The main resistance in focus is 1296.00, a breakout above that has a target of 1340.00-1350.00.
Applied Materials (AMAT) Pre-earnings Analysis
Chart done on daily timeframe. Stocks involved in the semiconductor sector have grown in valuation to astronomical numbers in the last 12 months. The two most prominent names to mention are Nvidia and AMD, both of which have reached new all time highs recently, but their price to earnings ratios are far above the “healthy” 15-25 average. The recent rally from Nvidia and AMD has lifted their price to earnings ratio to 90x and 320x (in that order), making them very expensive compared to the average. The continued optimism around artificial intelligence is the catalyst behind the exponential growth we’ve seen in semiconductor companies, but many semiconductor stocks may have grown too expensive in valuation. This is where we see opportunity in Applied Materials, which manufactures equipment and provides services to semiconductor industries, but is only trading at a 20x price to earnings multiple. That makes them one of the most affordable semiconductor companies on the market right now.
Amongst the biggest customers of AMAT are Taiwan Semiconductor (TSM), Intel, and Samsung. TSM’s most recent earnings report officially made them the world’s largest semiconductor maker by revenue, so we expect that growth to be reflected in AMAT’s numbers. AMAT is set to report earnings later this month and analysts are expecting about the same results are the last four quarters. The earnings estimate is 1.89 per share, which we expect them to easily surpass as it has over the last four quarters.
Option chain analysis:
As of now, the option chain for the week expiring 02.16.2024 is reflecting a 47% implied volatility reading, which translates to about a $10 move. If AMAT reaches its targets and sets a strong guidance into 2024, we expect it to move to 188.00-190.00. A miss on earnings however can send them back to 159.00-160.00.
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