Though next week is the official start of earnings season, the action typically starts off slowly. In fact, only 10 or so S&P 500 companies lead off during the first week. That’s not to say there aren’t some huge names, including JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C), and Google (NASDAQ: GOOG). And there’s one of our favorite ticker symbols – the FIZZ of National Beverage Corp. (NASDAQ: FIZZ).
But we’re going overseas for our next earnings play, looking toward India and Infosys Technologies (NASDAQ: INFY). The IT consulting company reports before the open on Tuesday, July 12. The problem for INFY is its disturbing tendency to run up into earnings and then reverse course after reporting. And this pattern is setting up once again.
How poorly does the stock do after earnings? Well, over the past four quarters, the shares have plunged by more than 7% on average in just the one day after reporting (those are the gaps in the chart). And before the past three reports, the stock has enjoyed solid rallies of 27%, 21%, and 15% (those correspond with the first three up moves in the chart). Currently, the stock is pulling back a bit after a 10% gain that’s covered the past two weeks. Uh-oh.
Fundamentally, INFY continues to exhibit solid growth. But wage inflation and currency appreciation are pulling margins lower, something that investors don’t digest too well at earnings time. And with the stock looking a little frothy after its recent run-up, INFY looks ripe for another post-earnings disappointment. Buy the INFY August 67.50 Put for $3.50 or less.
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