Trade of the Day: Buy the Bounce in Signet Jewelers (SIG) Stock
At first glance, diamond jewelry retailer Signet Jewelers (NYSE:SIG) seems like a money pit. On Wednesday, SIG stock suffered a devastating drop of more than 12%. While the company posted an earnings beat, investors didn’t respond well to its disappointing guidance. Still, the broader fundamentals are positive, suggesting that at least a dead-cat bounce is in order.
Signet reported adjusted earnings per share of $6.73 for its fiscal fourth quarter. This print beat the consensus target of $6.37. On the other hand, revenue of $2.5 billion missed analysts’ view of $2.55 billion. In addition, same-store sales declined 9.6% against the year-ago quarter.
However, what may have alarmed Wall Street was the guidance. For fiscal Q1, management anticipates total sales to land between $1.47 billion and $1.53 billion, while projecting same-store sales to decline 7% to 11%. In contrast, analysts were looking for revenue of $1.61 billion.
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For the full year, Signet anticipates the top line to reach between $6.66 billion and $7.02 billion. Here, analysts had targeted sales of $7.17 billion. Given the difficulties facing the consumer economy, it’s not surprising that investors dumped SIG stock. Still, a solid recovery pop could be in order.
Don’t Go Bearish on Love
Let’s talk data. According to ResearchAndMarkets.com, the U.S. wedding management market reached a valuation of $7.03 billion last year. Further, it should rise to $7.69 billion by 2029, representing a compound annual growth rate (CAGR) of 1.5%. Obviously, the wedding industry isn’t a growth machine, but it’s a steady, reliable revenue generator.
In turn, some of that sentiment should rub off on SIG stock. After all, many consumers today focus on experiences; hence, the revenge travel phenomenon. And what could be more impactful than a wedding? Naturally, the engagement ring plays a big role within the ecosystem and therefore Signet should benefit.
Chart by Josh Enomoto, InvestorPlace.com
On Wednesday, SIG stock closed at $90.08. Barchart’s technical resources indicate that there’s strong support at $88 to $89. In the premarket session Thursday, the dynamic is suggesting that SIG may open around $91. If so, there may be concerted resistance between approximately $97 to the psychologically important $100.
Until then, we might dead-cat bounce a ride to some quick profits.
Trade of the Day: Buy SIG Stock Call Options
To speculate on a possible bullish reaction to Signet stock, I’m looking at the 28 March 2024 SIG $92 call option. This derivative contract would give us until next Friday for SIG to jump toward the $97 level. However, exiting at $95 wouldn’t be a bad idea as there could be resistance there based on prior trading activity.
On Wednesday, the $92 call closed with a premium of $1.85. Should SIG stock hit $95 with three days remaining to expiration, this contract’s premium could soar to $3.46. That would be a massive return and it wouldn’t be unreasonable given the surprisingly stable fundamental backdrop.
As always, with near-expiry options, you need to be quick on the trigger. Further, you don’t want to stick around for longer than necessary. Remember, time decay occurs at an exponential rate when an option is close to expiration.
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 InvestorPlace.com 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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