by Ian Harvey
IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!
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Options Trade – Stitch Fix Inc (NASDAQ:SFIX) Calls
Wednesday, February 03, 2021
** OPTION TRADE: Buy SFIX MAR 19 2021 90.000 CALLS at approximately $7.00. (Max. $7.80)
Place a pre-determined sell at $14.00.
Also include a protective stop loss of $2.80.
Stitch Fix Inc (NASDAQ:SFIX) has pulled back from its highs of approximately $113 in the past week, which provides a great opportunity to profit from this call option going forward.
Stitch Fix's operating efficiency resulted in a huge post-earnings pop last month.
After a brief stint below its 2015 initial public offering (IPO) price of $15 earlier last year, it seems that investors are finally coming around to Stitch Fix’s 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.
Also, 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.
The stock jumped over 70% in late 2020. It has since shot up a further 70% in early 2021.
About Stitch Fix…..
Stitch Fix, Inc sells a range of apparel, shoes, and accessories through its Website and mobile app in the United States. It offers denim, dresses, blouses, skirts, shoes, jewelry, and handbags for men, women, and kids under the Stitch Fix brand.
The company was formerly known as rack habit inc. and changed its name to Stitch Fix, Inc in October 2011.
Stitch Fix's business model is easy to understand but hard to execute well. The company works as a personalized styling service, coming up with clothing and accessories to ship to subscribers on a regular basis. Clients pay for what they keep and can send unwanted items back to Stitch Fix.
Underlying that model is a sophisticated combination of artificial intelligence and human curation that seeks to match products with tastes. Over time, Stitch Fix has put up an impressive track record of success getting its subscribers to buy chosen items, and it's getting even smarter about its customers over time.
Stitch Fix last announced its quarterly earnings data on Sunday, December 6th. The company reported $0.09 earnings per share for the quarter, beating the consensus estimate of ($0.17) by $0.26. Stitch Fix had a negative net margin of 3.27% and a negative return on equity of 13.58%. The firm had revenue of $490.42 million for the quarter, compared to analyst estimates of $481.12 million. The business's quarterly revenue was up 10.3% compared to the same quarter last year.
As a group, equities research analysts anticipate that Stitch Fix will post -0.25 EPS for the current year.
Stitch Fix hasn't gotten as much attention from WallStreetBets as other stocks such as Gamestop, Express and Koss, but the stock has benefited from similar momentum in the form of a short squeeze. Thirty-seven percent of the stock was sold short as of Jan. 15, and shares of the personalized styling service have historically been volatile due to high short interest.
The stock jumped 63% last month on little news, a sign that a squeeze was pushing up the price.Influencing Factors…..
In the options pits, puts have been overwhelmingly popular, leaving plenty of pessimism that could unwind and push the security back higher. SFIX's 50-day put/call volume ratio of 1.03 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than all other readings in its annual range, meaning long puts have been picked up at their fastest rate all year in the last 10 weeks.
There's clear evidence of growing momentum. Stitch Fix gained 240,000 customers, a record, during what's normally a slow period for the subscription-based business.
The chain also successfully pivoted its offerings to match up with changing customer tastes. Packing its delivery boxes with athleisure and comfort wear led to customers choosing to buy more of its stylists' suggestions. It also demonstrated the company's flexibility and deepening connection with its shoppers.
At the same time, pushing into new product lines such as outerwear, kids, and mens apparel, along with new business models, has management feeling extra confident about the business.
"Our powerful personalization engine is evolving," CEO Katrina Lake said in the Q1 earnings release, "and innovations in our Fix and direct buy offerings will expand our addressable market, deepen client engagement, and grow wallet share over time."
Stitch Fix was downgraded by investment analysts at Robert W. Baird from an "outperform" rating to a "neutral" rating in a report issued on Friday, Briefing.com reports. They presently have an $85.00 price objective on the stock, up from their previous price objective of $60.00.
But Baird remains bullish on the equity long-term. In the same vein, Stifel analyst Lamont Williams cut the stock to "hold," from "buy." However, both analysts also raised their price targets -- Baird to $85 and Stifel to $83.
Williams is still bullish long-term, citing the company’s Direct Buy business which enables shoppers to buy online just like they do at traditional retailers. Stitch Fix's strong data operation is a factor too, he said.
Mark Mahaney of RBC Capital Markets anticipates that the overall consumer shift to online shopping during the coronavirus pandemic will continue, helping Stitch Fix.
Stitch Fix is valued at close to $10 billion, or almost six times the $1.7 billion it generated in sales last year.
Stitch Fix investment delivers some rare factors that can create impressive returns. These include a powerful, innovative, and flexible selling model, industry-leading customer loyalty, and a strong track record for market-share growth.
E-commerce retail is still a fast-growing business, and CEO Katrina Lake sees a $400 billion opportunity for its business. With revenue of less than $2 billion over the past 12 months, that leaves a long runway ahead for Stitch Fix to keep expanding.