How to Find Comfort in Low-Risk, High-Growth Lovesac Stock

LOVE is due to report fourth-quarter earnings on March 29

Mar 22, 2022 at 11:37 AM
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Lovesac Co (NASDAQ:LOVE) is set to release its fourth-quarter earnings results before the open on Tuesday, March 29. LOVE's senior leadership team will also host a conference call the same day to discuss the results. For during its third quarter,  Lovesac reported an EPS (earnings per share) of $0.17. However, Wall Street analysts have big expectations this time around, projecting a significant increase in earnings up to $0.54 per share.

The equity has an impressive history of positive post-earnings returns during the past two years, settling higher after six of these reports, which includes a 24.1% pop in September, and a 27.3% rise back in April 2020. Regardless of direction, LOVE has averaged a next-day swing of 16%, which is slightly smaller than the 18% move the options pits are pricing in. 

Speaking of options pits, LOVE's have been bearish. This is per the stock's Schaeffer's put/call options ratio (SOIR) of 0.81, which stands higher than 78% of readings from the past year. In other words, these traders have been quite put-biased of late. 

Meanwhile, long puts haven't been more popular in the past year. During the past 10 days, 16.84 puts have been picked up for every call at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio stands higher than all other readings from the past 12 months. 

You can't blame these bears completely. Lovesac stock has shed 28.4% this year, and hit a two-year low of $35.07 on Feb. 24. The security did manage to regain control of its 20-day moving average shortly after the low, and now its contending with its 60-day moving average for the first time since December. 

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The specialty retail company has grown its annual revenues 35% since fiscal 2021 and 160% since fiscal 2019, generating roughly $432 million in sales over the past 12 months. LOVE has also increased its annual net income 137% since fiscal 2021 and approximately  $70 million since fiscal 2019. This translates to the generation of roughly $35 million in net profits over the past 12 months. In addition, Lovesac is estimated to grow its revenues 27.2% and its earnings 47% in fiscal 2023.

Lovesac stock trades at forward price-earnings ratio of 19.53 and a price-sales ratio of 1.49, which is a decent valuation considering the business’ high growth rate. The biggest fundamental issue with investing in LOVE seems to be its balance sheet, which consists of $48 million in cash and $106 million in total debt. Nonetheless, Lovesac stock offers a great opportunity for risk-averse investors looking for a high-growth play due to the business’ growing profitability.


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