Urban Outfitters Stock Puts the Squeeze on Shorts Ahead of Earnings

URBN stock has a history of making volatile post-earnings moves

Karee Venema
Nov 17, 2017 at 11:20 AM
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Retail earnings have been heating up, and the sector will continue to be in focus after the Thanksgiving holiday, too, as traders eye Black Friday and Cyber Monday sales numbers. Ahead of these annual events, Urban Outfitters, Inc. (NASDAQ:URBN) will take its turn in the earnings confessional after Monday's close. Here's a closer look at how the retail stock has been performing on the charts, and how pre-earnings sentiment is lined up on URBN shares.

At last check, URBN was up 4.8% to trade at $27.72 -- set to extend its daily win streak to four -- getting a lift from a positive earnings reaction for Gap (GPS). The shares have been trending higher since hitting their most recent low of $16.68 in mid-August, up 66% and at levels not seen since late February. What's more, Urban Outfitters is on track to close north of its 80-week moving average for the first time since last December.

While the shares have a mixed history of post-earnings price action -- finishing the subsequent session higher in four of the past eight quarters -- the moves have been big. Over the past eight quarters, URBN stock has averaged a single-session post-earnings move of 10.7%, including a 17.5% pop last August and a 12% plunge this time last year. This time around, the options market is pricing in a next-day swing of 12%, regardless of direction, based on at-the-money implied volatility data.

A number of options traders appear to be betting on this post-earnings action to resolve to the upside -- and possibly positioning for a positive reaction to holiday sales data. Specifically, URBN's December 26 and 28 calls have seen the biggest increases in open interest over the past 10 days, and data from Trade-Alert points to buy-to-open activity earlier this week.

Given the stock's recent rise, this could certainly be the result of vanilla options bulls. However, short sellers could also be purchasing the calls to guard their bearish bets against any additional upside risk. URBN remains heavily shorted, with 29.12% of the stock's float sold short -- or 10 times its average daily pace of trading.

In fact, this skepticism is seen in the brokerage bunch, too, with 13 of 19 analysts maintaining a "hold" or "strong sell" rating on URBN. Plus, the average 12-month price target of $22.15 sits well below current trading levels. Another post-earnings pop could spark a short-squeeze and/or a round of bullish brokerage notes, which could propel Urban Outfitters even higher.


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