Analyst: Dump This Drug Stock Now

Craig-Hallum cut its rating on PETS stock to 'sell'

Jul 9, 2018 at 12:59 PM
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The shares of online pet pharmacy PetMed Express Inc (NASDAQ:PETS) are getting rocked today, due to an analyst downgrade. The equity was last seen 8.3% lower to trade at $39.09. As such, PETS stock is on the short-sale restricted (SSR) list, and option bears are coming out of the woodwork.

Craig-Hallum downgraded Petmed stock to "sell" from "hold," and sliced its price target to $32 from $38 -- representing expected downside of about 25% from PETS' close of $42.62 on Friday.The analyst attributed the downgrade to stiff competition from Chewy Pharmacy's launch, which could weigh on PETS' margins.

PetMed shares are set for their worst day since Jan. 22, and are on pace to end beneath their 160-day moving average -- a trendline that's acted as support in the past. Just last month, PETS stock was bumping up against resistance in the $45-$46 region -- home to the equity's year-to-date breakeven level. Further, the overhead $48 neighborhood acted as a ceiling for PETS stock earlier this year.

PETS stock chart july 9

As alluded to earlier, PETS put options are flying off the shelves today. So far, roughly 5,000 puts have changed hands, compared to just over 800 call options. Intraday put volume is running at 21 times the average pace, set for the 99th percentile of its annual range. Most of the action has transpired at the August 40 put, with more than 4,000 contracts traded. Digging deeper, it looks like some traders may be cashing in their proverbial chips, selling to close the now in-the-money puts.

Prior to today, near-term options traders were much more put-heavy than usual. The stock's Schaeffer's put/call open interest ratio (SOIR) is docked at a 12-month peak of 2.40, indicating puts more than double calls among the front three-months' series of options.

And while PETS is on the SSR list today, quite a few short sellers are likely cheering. Short interest represents nearly 29% of Petmed Express' total available float, or about nine days' worth of trading, at the equity's average daily volume.

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