3 Mid-Cap Earnings Plays Worth the Risk
From simple buy-and-hold to high-frequency day trading, there is a wide variety of investing strategies out there. Here we provide a few examples of m...
From simple buy-and-hold to high-frequency day trading, there is a wide variety of investing strategies out there. Whether you're a long-term investor or a short-term day or swing trader, it's often best to develop a strategy that fits your style and stick with it.
At the short-term end of the spectrum, the earnings play strategy is popular because a known news catalyst is imminent. On the bullish side, this involves researching a company you think will exceed expectations to spark a rally.
Here we provide a few examples of mid-cap stocks that are reporting this week—and could have some nice surprises up their sleeves.
Is Restoration Hardware a Pre-Earnings Buy?
Restoration Hardware (NYSE:RH) reports first quarter earnings on June 9th after the market close. The high-end home furnishings retailer is expected to report earnings per share (EPS) of $4.20 on revenue of $756 million.
Look no further than the company's impressive earnings beat streak to see why there's a good chance it tops the consensus yet again. RH has beat the Street in each of the last 19 quarters, a stretch that goes back to mid-2016.
Last quarter, it beat on the top and bottom lines and the stock went on a 2-day, 19% run. This sparked a climb to a record high of $733.05.
Heading into this week's report, RH is trading for about $100 less per share. If stay-at-home project activity remained strong, high margin sales of furniture, bath decor, and garden products will likely restore investors' faith in Restoration Hardware stock.
Is Signet Jewelers Stock Undervalued?
Signet Jewelers (NYSE:SIG) is scheduled to report its quarterly performance before the market open on June 10th. The analyst consensus is EPS of $1.41 on revenue of $1.6 billion.
The Bermuda-based jewelry retailer's stock carries good momentum into the announcement having advanced for five consecutive months. Signet is already up 127% this year, but at roughly $62 a share has room to run to return to its 2015 peak above $150.
In the near-term, the company is benefitting from a surge in online sales. Last quarter e-commerce sales were up 71% and accounted for nearly a quarter of overall sales. Many industries have accelerated their move into e-commerce since the start of the pandemic and the jewelry industry has been among the most aggressive.
In fiscal 2021, Signet closed a net 375 of its brick-and-mortar locations. Over the last three years it has turned the close sign over on more than 20% of its stores. Many of the biggest underperformers were located in shopping malls.
Meanwhile, it has built out its online storefront attracting a much more global audience in the process. International sales more than doubled last quarter and made a strong contribution to Signet's third straight earnings beat. Online features like customer service chat, virtual try-on, and sales consulting are driving strong customer engagement. The recent acquisition of jewelry rental subscription service Rocksbox is also expected to open new doors for online growth.
Despite Signet's strong rally over the past year, the stock is still inexpensive. At 13x forward earnings, the market still has some catching up to do to properly value this surging retailer. Look for another sparkling earnings report to ignite the next leg up in the rally.
Is Dave & Busters a Good Reopening Play?
Dave & Busters Entertainment (NASDAQ:PLAY) is a particularly intriguing earnings play because the technical analysis is largely in sync with the fundamental story. The popular entertainment venue operator is expected to report a first quarter loss of $0.13 per share on revenue of $242 million.
Although there have been fewer quarters pouring into the Skee-ball machines during the pandemic, things have opened up over the past year. Although, it's unlikely the company returned to profitability last quarter, the results may be better than the market is anticipating.
As of mid-April, approximately 98% of the 141 Dave & Busters stores were reopened. At most locations hours have been lessened and capacity limitations are in place. A handful of stores are still food & beverage only. Yet management noted that sales were at 81% of pre-pandemic levels at this time. It also raised its first quarter revenue guidance to $252 million to $257 million. The pessimistic consensus estimate is well below this, so we could be in for a sizeable beat.
On the technical analysis side, a pair of bullish chart patterns suggest Dave & Busters stock is poised to breakout. A symmetrical continuation triangle that formed late last month on the daily chart points to a run to $50 to $52 this month. Just this week, a double bottom was established that also suggests a return to $50 is imminent.
So, between the Street's overly cautious forecast and some favorable technical developments, 'PLAY' is looking like a strong earnings play.
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