Heavily Shorted Retail Stock Named a 'Best Idea'

DDS stock recently bounced near familiar support of the 160-day moving average

by Josh Selway

Published on Aug 8, 2018 at 9:39 AM

Dillard's, Inc. (NYSE:DDS) has been a favorite target of short sellers, with more than one-third of the stock's float dedicated to short interest. Depending on the data you rely on, it would take these traders three to four trading weeks to cover their positions, based on average daily trading volumes. No matter how you slice it, it's clear many are betting on a major retreat for DDS shares, but one analyst is going the other direction.

Just this morning, Wedbush added Dillard's to its "Best Ideas" list, in a rare sighting from the analyst community. In fact, there are just four brokerage firms in coverage on the equity, and two of them have "strong sell" ratings. The average 12-month price target, meanwhile, is $81.80, almost identical to Tuesday's close of $81.78 for the security.

As for options traders, volume on an absolute basis has been low on DDS, but those targeting near-term contracts have shown a clear preference for puts. This is according to the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.92, which not only shows put open interest among options expiring within three months roughly doubles call open interest, but its annual percentile rank of 88% shows such a tilt toward puts is rare. Digging deeper, the August 65 put saw the largest increase in open interest during the past 10 sessions.

Turning to the charts, Dillard's has pulled back some since hitting a nearly three-year high of $98.75 back in June, though it recently bounced near the 160-day moving average. This trendline also marked a bottom during the stock's deep May pullback and provided strong support in January and February. In early trading, the shares are up 4% to trade at $85.

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