Bull Signal Flashing For Best Buy Stock Ahead of Earnings

BBY call buying has picked up in recent weeks

Lillian Currens

Digital Content Manager

May 15, 2019 at 2:21 PM

Shares of the tech retailer Best Buy Co Inc (NYSE:BBY) are slightly higher today, ahead of the company's first-quarter earnings, slated for release before the open next week on Thursday, May 23. The stock has cooled off since its year peak just atop the $75 area in April, but has found support at its 160-moving average -- an area that has acted as a layer of support on the charts since its post-earning's bull gap last February. What's more, a signal just flashed that could mean even more upside for BBY, if history is any indicator.

Specifically, the security just came within one standard deviation of its 80-day moving average after a lengthy period above it. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, BBY has flashed this signal nine times before in the past three years. The security has finished higher one month later an impressive 89% of the time, and has averaged a 5% increase after the signals. From the stock's current perch at $67.70, a similar move would put BBY right atop the $71 region.

BBY Chart May 15

Keeping in mind BBY's most recent 14.1% post-earnings surge, options traders are still pricing in a wider-than-usual move at 10.4%, compared to the 8.9% swing the shares have averaged in the past two years. While earnings reactions have been split down the middle since the stock's earnings report in May 2017, the past two post-earnings moves have been positive.

Best Buy is ripe for a round of analyst upgrades, too. Currently, there are only five "strong buy" ratings on the table, compared to ten "holds." Plus, the consensus 12-month target price is at a relatively slim 14.4% premium to current levels.

On the options front, however, optimism abounds. Currently BBY sports a 50-day call/put volume ratio of 2.05 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits higher than all other readings from the last year, indicating that options traders have had a much larger than usual appetite for calls of late.

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