GES has a high reward potential, but also a high level of risk
Guess?, Inc. (NYSE:GES) is surging ahead of its fourth-quarter earnings report, which is due out after tomorrow's close. Last seen up 3.9% at $18.05, the equity is now finding support at the $17 area, after breaching that level last week. The stock's 10-day moving average has been keeping a tight lid on gains since February, though, contributing to its 23.6% year-to-date deficit.
The security has a history of upbeat post-earnings reactions, finishing five of eight next-day sessions higher in the last two years, including an 11.4% pop in November. Options traders are pricing in a 17.6% swing for GES this time, which is significantly lower than the 23.5% move it averaged following its last eight reports, regardless of direction.
Short sellers have been piling on the equity of late. In fact, short interest rose 10.7% in the last two reporting periods, and the 8.30 million shares sold short now account for a massive 21.4% of the stock's available float, or more than one week's worth of pent-up buying power.
Meanwhile, at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GES' baffling 10-day call/put volume ratio of 802.33 sits higher than all but 4% of readings from the past year. This indicates calls have been picked up at a much quicker-than-usual clip in the last two weeks.
Guess stock currently trades at a price-earnings ratio of 6.90, and a price-sales ratio of 0.60, both of which indicate the security is undervalued. GES also provides a very high dividend yield of 5.18%, with a forward dividend of $0.90. In addition, the company has grown revenues by 30% and net income by more than $250 million since 2021, and is estimated to deliver a 10.5% increase in earnings, and 5.7% revenue growth for 2023.
In exchange for the high reward potential, Guess stock also comes with a high level of risk. GES' balance sheet is weak, with just $398 million in cash, and $1.2 billion in total debt. The company experienced substantial revenues and net income declines in 2021, when it reported $81.4 billion in net losses, and a 30% decrease in revenues.
Nonetheless, Guess stock's attractive valuation and high yielding-dividend puts GES’ upside potential among the highest for dividend stocks.