It’s Time to Shop for Zumiez Calls

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The earnings calendar is getting mighty sparse — in fact, just a couple of S&P 500 companies are scheduled to report this week. So we dug a little deeper to come up with Zumiez (NASDAQ:ZUMZ), which reports Wednesday after the close. For those who don’t frequent malls, Zumiez specializes in sports-related apparel, footwear, and accessories.

Analysts expect the company to earn five cents a share compared to a loss of two cents a year ago. The company has a solid record of beating these estimates, having missed just once in the past 18 quarters. Performance after these reports has been mixed, although competitors Wet Seal (NASDAQ:WTSLA) and Hot Topic (NASDAQ:HOTT) have done well after their recent reports.

ZUMZ shares were knocked lower earlier this month after disappointing same-store sales numbers in July. But the market appears to have digested the news, and the stock is rebounding from an 11-month low. On Monday, the stock was up 3.5% to $19.30.

Sentiment toward ZUMZ is tilted toward the bearish, especially among the shorts. Shorted shares represent about 30% of the float, meaning that the stock could benefit from short-covering, especially if the company beats the earnings estimate. Analysts are likewise skeptical, as fewer than half (eight of 19) consider the retailer a buy.

The tide appears to be turning for ZUMZ. With other specialty mall-based retailers doing well after their recent earnings report, the stock putting in a bottom, and plenty of pessimism available to unwind into buying pressure, we like ZUMZ heading into earnings. We’re going deeper in the money on this option play, as the bid/ask spread is more favorable. Buy the Sept. 17.50 call for around $2.50.

Have a great trading week.

 


Article printed from InvestorPlace Media, https://investorplace.com/2011/08/its-time-to-shop-for-zumiez-calls/.

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