Trade of the Day: Bet on a Short Squeeze in PetMed Express (PETS) Stock

  • Shares of pet pharmacy PetMed Express (PETS) finally showed signs of life.
  • A new change at the top may help reverse longstanding bearishness.
  • A possible short squeeze could also boost PETS stock.
PETS stock - Trade of the Day: Bet on a Short Squeeze in PetMed Express (PETS) Stock

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Following a series of disappointing financial results and missteps, pet pharmacy PetMed Express (NASDAQ:PETS) finally showed some vigor. PETS stock closed up nearly 3% on Monday on news that there will be a change at the top. Further, a potential short squeeze could make the embattled business a surprisingly robust avenue for speculation.

PetMed announced that it appointed current board member Sandra Campos as its CEO and president. Prior to taking the helm, Campos served as the head executive of Diane von Furstenberg, a luxury clothing and accessories brand. With years of experience in retail, it’s possible that PETS stock may finally reverse its sharply downward trend.

Just as well, bullish speculators have the fundamentals on their side. According to the American Pet Products Association, total U.S. pet industry expenditures hit $147 billion last year. That’s up from the prior year’s print of $136.8 billion. Americans continue to prioritize their furry family members despite inflation and other economic challenges.

Risky But Intriguing Technical Case

Despite the seemingly encouraging backdrop of strong pet market sales, this dynamic hasn’t translated to upside for PETS stock. Rather, it’s quite the opposite. Since the start of the year, shares have plunged more than 45%. In the past 52 weeks, PetMed lost almost 73%.

However, if the bulls can manage to hold support at the psychologically significant $4 level, it’s possible that a recovery might materialize. First, the change in leadership with a retail industry veteran could offer PETS stock a much-needed credibility lift. Second, PetMed carries extremely high short interest of 25.18% of its float.

Chart by Josh Enomoto,

In addition, the short interest ratio of PETS stock stands at 20.73 days to cover. In other words, it may take nearly 21 trading sessions for the bears to fully unwind their short position. That’s more than enough time to cause a panic – or short squeeze – should PETS swing higher.

Short squeezes are powerful because there is no limit to how high a security can rise. Further, as the first batch of short traders move to cover their position, the very act of covering involves purchasing said security. That can cause a positive feedback loop that could benefit the bulls.

Trade of the Day: Buy PETS Stock Call Options

For the trade of the day, there are two plays involved. First, you can choose to gamble in the open market and buy PETS stock. However, if you really want to accelerate your profit potential – at the exchange of heightened risk – then the 20 Sep 2024 $5 call is awfully tempting.

From a technical standpoint, the $5 price point is significant. It’s the halfway mark to a double-digit price. Therefore, the bulls will be looking to drive shares up to this level and perhaps beyond.

Moreover, there’s plenty of time for PETS stock to rise about 21% from Monday’s close to reach the $5 strike price. While it’s a huge risk, the combination of strong pet industry trends, a positive leadership change and a potential short squeeze could reinvigorate PetMed Express.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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