Short Sellers Sink their Teeth into Struggling Cheesecake Factory Stock

Short interest is at a five-year high on CAKE stock

Jul 5, 2017 at 2:24 PM
facebook X logo linkedin


Overall, restaurant stocks were solid in 2016. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the stocks under our "restaurant" umbrella sport a collective year-over-year gain of 12.1%. More recently, however, the sector has struggled, with White's data showing an average year-to-date gain of just 2.8%. One stock that perfectly encapsulates this sudden change is Cheesecake Factory Inc (NASDAQ:CAKE). Let's take a closer look at CAKE stock below. 

Starting on the charts, Cheesecake Factory shares touched a record high of $67.14 on May 3 thanks to a mostly steady multi-year ascent. However, CAKE stock got crushed back on June 13, after the company issued a surprisingly disappointing second-quarter same-store sales outlook. The shares have continued to edge lower since then, and at $49.70, are on pace for their lowest close since Oct. 26. What could be even more troubling for shareholders is the fact that CAKE is on the verge of closing below its 36-month -- or three-year -- moving average in consecutive months for the first time since late 2009. 

cake stock today

Part of the recent selling pressure could be connected to elevated interest from short sellers. Specifically, short interest on Cheesecake Factory stock is at its highest point in five years, even after edging lower in the previous two reporting periods. As it stands now, short interest accounts for almost 20% of the stock's float.  If CAKE's technical -- and possibly fundamental -- weakness further emboldens these bears, it could hurt the shares' performance. 

As for the broader restaurant sector, increasing short interest is actually an anomaly. White's data shows the 20 stocks we cover in the sector have cumulatively seen short interest fall by almost 9% over the past 52 weeks. 

In the meantime, short sellers could be using call options to hedge their positions. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 2.28 for CAKE, which ranks in the 88th annual percentile. 

It's actually a good time to buy short-term CAKE options. Specifically, the shares have a Schaeffer's Volatility Index (SVI) of 24%, which ranks in the low 23rd annual percentile. This means near-term options are unusually cheap, from a volatility perspective. But for those speculating on more downside for Cheesecake Factory stock, be warned: its 14-day Relative Strength Index (RSI) landed at 28 as of last night's close, meaning it's technically oversold and could be due to bounce. 

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI