Is Burlington Stores Inc (BURL) the Retail Diamond in the Rough?

Outperforming Burlington Stores Inc (NYSE:BURL) is surrounding by skepticism

May 25, 2016 at 12:14 PM
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Apparel retailer Burlington Stores Inc (NYSE:BURL) is gearing up to report first-quarter earnings before the market opens on Thursday. The stock has added 31% already in 2016, up 1% today at $56.26. But despite BURL's strong technical performance this year, bearish sentiment is running high, making the stock an attractive target for contrarian bulls.

Over the past 10 weeks on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.50 BURL puts for each call. Moreover, the resulting 50-day put/call volume ratio ranks higher than 98% of all readings in the past year.

Elsewhere, short interest on the stock climbed 10.5% during the most recent two-week reporting period. These bearish bets now account for nearly 10% of BURL's available float, or more than six sessions' worth of trading, at the stock's average daily volume. An unwinding of this pessimism in and outside of the options pits could send the shares higher.

As touched upon, BURL has been a technical standout this year, and after recently overtaking its 20-week moving average, it appears to be on the cusp of reclaiming its 10-week moving average, as well. Both of these trendlines have been historically significant for BURL, as its clearing of the two in May 2014 immediately preceded the stock's 10-month-long rally, in which the shares more than doubled in value. However, it should be noted that BURL is currently facing off with the $56-$58 region, which shut down the equity's rally attempts through much of 2015.

BURL weekly chart May 25

Furthermore, BURL bears could be running to exits following earnings, should the company buck the ugly retail trend. In fact, Burlington Stores Inc (NYSE:BURL) has made a positive move in the session following earnings in six of the last eight consecutive quarters. At last check, options were pricing in an expected one-day move of 9.4% -- somewhat larger than the average post-earnings swing of 5.3% seen over the last eight quarters. And at least a few traders may be hoping for the best, as it looks like some buy-to-open activity has transpired today at the stock's June 55 call.

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