Consider Selling Sherwin-Williams Stock Before Earnings

The company will report third-quarter earnings on Tuesday, Oct. 26

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The last time we checked in on Sherwin-Williams Company (NYSE:SHW), the equity was lower after reporting a fiscal second-quarter earnings miss. The company is now set to report third-quarter results before the open on Tuesday, Oct. 26. Below, we will dive into the stock's technical setup, as well as some of its previous post-earnings moves.

Sherwin-Williams stock is fresh off a Sept. 3, all-time high of $310.43. The shares have struggled with a ceiling at the $300 level in the past couple of weeks, though the $272 area served as a springboard after the equity's latest pullback. The 140-day moving average has also been supporting the security, which is up 29.2% year-over-year.

SHW 140 Day

The equity has a generally positive history of post-earnings reactions, finishing five of these eight next-day sessions higher in the last two years, including a 5.9% pop in April of 2020. Sherwin-Williams stock averaged a 2% move in the aftermath of its last eight reports, regardless of direction.

The options pits are firmly in the bearish camp. This is per Sherwin-Williams stock's 50-day put/call volume ratio of 2.45 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 99% of readings in its annual range. This means puts are getting picked up at a much faster-than-usual pace. 

From a fundamental point of view, Sherwin-Williams stock has a very high valuation, considering its revenue and net income growth. Although the paint concern has grown revenues by 31% since 2017, it is difficult to justify SHW's high price-earnings ratio of 37.06.

Additionally, SHW has struggled to maintain a consistent bottom-line, experiencing a 38% decrease in net income in 2018, and a mere 22% increase since 2017. The equity also sports a weak balance sheet with $216 million in cash, and over $10 billion in total debt. With a forward price-earnings ratio of 28.90, the stock has already priced in the majority of its growth over the next two years, making it a candidate to be sold at this time.

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