Stitch Fix’s operating efficiency resulted in a huge post-earnings pop last month
Every day for the next two weeks, we’re going to highlight one of Schaeffer’s top 14 picks for 2021. Up today is an e-tail stock with massive short squeeze potential; sound familiar? To access the entirety of the 2021 report, click here.
After a brief stint below its 2015 initial public offering (IPO) price of $15 earlier this year, it seems that investors are finally coming around to Stitch Fix’s (NASDAQ:SFIX) somewhat novel business model. In fact, Wall Street seems to have embraced the online personal shopping service amid the pandemic, as the company became more efficient in meeting first-time customers’ needs. The stay-at-home staple’s better-than-expected earnings report in early December also helped highlight this recently improved operating efficiency, and investors responded in turn. In fact, SFIX is now trading at nearly four times its IPO price, and more than double its 2019 close.
Despite the company’s obvious ability to prove itself, some still aren’t convinced. Of the 16 analysts covering SFIX, eight consider it a “hold” or worse, presenting plenty of upgrade opportunities as the equity continues to climb. Meanwhile, short interest continues to cling close to its late-2019 levels, though short sellers may be ready to jump ship soon, possibly triggering a a short squeeze. Currently, the 21.25 million shares sold short make up a massive 42.7% of the stock’s available float, and would take almost seven days to cover, at SFIX’s average daily pace of trading.
An unravelling of bearish bets in the options pits could have a similar effect. This is per the equity’s SOIR of 1.66, which stands higher than all other readings from the past year, suggesting short-term options traders haven’t been more put-biased during the past year.
Todd is the Senior Vice President of Research at Schaeffer’s Investment Research and has been with the research firm since 1993. Mr. Salamone is a graduate of The Ohio State University with a double major in finance and insurance and risk management. He has over 25 years of options trading experience, emphasizing technical and sentiment analysis in his equity, broad market and sector research. Mr. Salamone is the author of Schaeffer’s Monday Morning Outlook, and he has been interviewed on CNBC, Bloomberg Television, Fox Business Network and quoted in several national media outlets such as The Wall Street Journal, Reuters, the Associated Press and others. Todd has trained tens of thousands of traders to be successful options traders.