Schaeffer's Trading Floor Blog

Wall Street Rookie Checkup: YELP, KORS, and WAGE

Analyzing the fundamental, technical, and sentiment setups of YELP, KORS, and WAGE

by 10/30/2012 12:14 PM
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The past year has been chock-full of noteworthy initial public offerings (IPOs), with Facebook Inc (NASDAQ:FB - 21.94), Groupon Inc (NASDAQ:GRPN - 4.47), and Zynga Inc (NASDAQ:ZNGA - 2.31) garnering much of the attention. However, while those three are still notably south of their debut prices, a trio of Wall Street freshmen have been flying under the proverbial radar: Yelp Inc (NYSE:YELP - 23.17), Michael Kors Holdings Ltd (NYSE:KORS - 54.49), and WageWorks, Inc. (NYSE:WAGE - 19.12).

Online review concern YELP has muscled more than 64% higher since touching a post-IPO nadir of $14.10 in mid-June, and has outperformed the broader S&P 500 Index (SPX) by about five percentage points during the past 40 sessions. More recently, the equity has pulled back to the $23-$24 neighborhood, which served as resistance in August and early September before switching roles to act as support.

On the fundamental front, the company last week agreed to buy European peer Qype for about $50 million in cash and stock, underscoring its quest to accelerate its overseas expansion. Furthermore, the firm said it expects third-quarter revenue to exceed its August forecast, which was already north of the Street's consensus at the time.

In the options pits, buyers have favored calls over puts, as evidenced by the latest data from the major options exchanges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day call/put volume ratio of 3.85, indicating that traders have bought to open almost four YELP calls for every put during the past couple of weeks.

In the front-month series, the out-of-the-money November 31 strike has garnered the most attention of late. During the past 10 sessions, call open interest has rocketed higher by more than 3,000 contracts, and this strike now houses more than 4,100 calls outstanding -- making it the most popular November strike. Runner-up is the out-of-the-money November 30 strike, which is home to more than 3,500 open calls.

However, it's worth noting that short interest accounts for more than 15% of YELP's total available float, representing about three sessions' worth of pent-up buying demand, at the stock's average pace of trading. Against this backdrop, it's possible that the recent affinity for out-of-the-money calls could be attributable to hedging activity among the shorts.

Meanwhile, just two out of nine analysts consider YELP worthy of a "buy" or better rating. Likewise, the consensus 12-month price target on the stock sits at $26.56, implying expected upside of 14.6% to the security's closing price of $23.17 on Friday.

Should YELP extend its recent string of higher lows and highs, a short-squeeze situation or a round of upbeat analyst attention could lure more buyers to the table.

Moving on, designer diva KORS has more than doubled since debuting in late December, peaking at $57.92 earlier this month. What's more, after a period of consolidation, the stock's 10-week moving average has finally ascended into the $54 area, which could launch the stock on its next leg higher.

In light of KORS' technical trajectory -- the stock has outperformed the SPX by more than 30 percentage points during the past three months -- it's no surprise to find most of Wall Street in the bulls' camp. Currently, the equity sports eight "strong buys" and one "buy" rating from analysts, with not a single "sell" in sight. Plus, the average 12-month price target on the security rests at $63, suggesting the brokerage bunch is expecting KORS to resume its journey into record-high territory.

In similar fashion, the stock's 10-day ISE/CBOE/PHLX call/put volume ratio stands at 4.34, implying that option buyers have initiated more than four bullish bets for every bearish in the past two weeks. Likewise, the security's Schaeffer's put/call open interest ratio (SOIR) sits at 0.67, indicating that calls comfortably outnumber puts among options with a shelf-life of three months or less.

Attracting the most attention of late has been the November 60 call, which has seen open interest increase by roughly 2,500 contracts during the past couple of weeks. Nevertheless, the 55 strike remains home to peak call open interest in the front-month series, with nearly 6,900 contracts outstanding. In the short term, however, this abundance of bullish bets overhead could translate into an options-related speed bump for KORS.

Weekly Chart of KORS since December 2011 With 10-Week Moving Average

Finally, spending-account management concern WAGE has nearly doubled from its IPO price of $9.99, muscling higher atop its 10-week moving average. In fact, the equity touched an all-time acme of $19.68 just last week, and has outpaced the SPX by nearly 29 percentage points during the past 60 sessions.

Fundamentally, the company is slated to release its third-quarter earnings after the close on Tuesday, Nov. 6. In its first turn in the earnings confessional, the firm offered stronger-than-expected bottom-line figures. Another positive earnings surprise could draw more attention to the outperformer.

Furthermore, a solid showing in the earnings spotlight could also spook a few skeptics on the Street. Short interest skyrocketed by nearly 40% during the most recent reporting period, suggesting pessimism is still prevalent toward WAGE. Plus, the average 12-month price target on the stock stands at $21 -- representing a premium of less than 10% to WAGE's closing price of $19.12 on Friday. A few upbeat analyst notes could also help the security resume its uptrend.


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