Post-Earnings Rally Could Continue for Booming Nordson Corporation (NDSN)

Nordson Corporation (NASDAQ:NDSN) is up 1,000% since its 2009 low, but traders remain skeptical

Dec 14, 2016 at 12:48 PM
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Industrial machinery stock Nordson Corporation (NASDAQ:NDSN) has rallied 8.8% today to trade at $113.47 -- and earlier hit an all-time high of $113.90 -- after the company reported better-than-expected fiscal fourth-quarter earnings and offered up an encouraging forecast. This post-earnings surge is nothing new for NDSN stock, though. Prior to today, the shares had enjoyed gains of 10.5%, 15%, and 7.6% in the sessions following the firm's past three earnings releases. Moves like this have helped Nordson rally an astonishing 1,000% since its 2009 bottom near $10. Despite this impressive fundamental and technical performance, NDSN shares remain surrounded by pessimism. 

For starters, it looks as if NDSN stock is long overdue for another round of bullish analyst attention. At the moment, 60% of covering brokerage firms rate the stock a tepid "hold," and today's move puts the shares above their average 12-month price target of $109.38. Price-target hikes and/or upgrades could send NDSN further into all-time-high territory. 

While options volume on NDSN has been somewhat light on an absolute basis, traders have frequently targeted puts over calls. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows put buying roughly doubling call buying over the past 10 weeks. Plus, Schaeffer's put/call open interest ratio (SOIR) for Nordson stands at 1.34, meaning put open interest outweighs call open interest among options expiring within three months. An unwinding of these positions could also lift NDSN. 

If that wasn't enough, short interest remains elevated on the outperformer. By the numbers, Nordson Corporation's short-interest ratio is 10.7, suggesting it would take these bearish traders more than two weeks to cover their positions, based on the security's average daily volume. Sure enough, NDSN's sharp rise on the charts over the past year has coincided with a roughly 30% decrease in short interest, so further gains are likely if this trend continues. On the whole, the stock seems like a prime target for bullish contrarian traders

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