A strategy idea for options trading investors.
With next week’s earnings schedule filled with big hitters, we thought we’d take a look at a smaller name that’s had its share of struggles. Unfortunately for them, we see these problems continuing with next week’s earnings report.
The company is RadioShack (NYSE: RSH), which swims in the same electronic retail waters as Best Buy (NYSE: BBY) and to some extent Wal-Mart Stores (NYSE: WMT). Note that BBY, after showing some initial strength following earnings in mid-June, is now trading below its pre-earnings levels. And RSH is no BBY, relatively speaking. BBY is down about 15% so far this year, while RSH is down 30%.
Analysts expect for RSH a 10% decline in EPS from a year ago, which is about in line with what the company has delivered the past two quarters. Not much to get excited about there. Nor is the stock’s post-earnings performance. The shares have slumped in the month following each of the past four quarterly reports.
The chart is anything but pretty, as the stock is languishing near its lowest point in more than two years. But there’s still plenty of room on the downside, as another 50% could be lopped off the current price to hit the 2009 low.
Sentiment is largely negative, as you would expect. But it’s not as bad as you might think. Short interest is low and more analysts rate the stock a “buy” than a “sell.” We’re not saying that optimism is prominent. It’s just that this level of pessimism shouldn’t interfere with added weakness after earnings.
RSH is in a tough spot. Its stores compete with too many bigger names, and it hasn’t found a niche other than those looking to pick up a few spare parts here and there. Don’t look for any upside surprises when it reports on Monday before the open. In fact, the odds are for another post-earnings slide that should pull the shares to multi-year lows.
Buy the RSH August 13 Put for around 80 cents or less.
Money-Doubling Options Trades from Earnings Hits & Misses
Learn how to cut through the rumor and manipulation surrounding corporate earnings announcements and bank money-doubling option trades all year long. Download our FREE trading guide here.
