Market weakness is creating bargain opportunities for two stocks reporting earnings this week.
DocuSign Inc. (Nasdaq: DOCU) is down 65% from its recent peak, and Stitch Fix Inc. (Nasdaq: SFIX) is down 90% from its all-time highs.
With these two volatile stocks heading into earnings, let’s see what we can expect during their quarterly calls this week.
Earnings Edge Recap
Our stocks last week were mixed.
ACADIA Pharmaceuticals Inc. (Nasdaq: ACAD) is still in a consolidation pattern.
In contrast, SI-Bone Inc. (Nasdaq: SIBN) is starting an upward breakout. Look for the stock to run higher from here.
Earnings Edge Stock No. 1: Stitch Fix (Nasdaq: SFIX)
Earnings Announcement Date: Tuesday, after the close.
Expectations: Earnings at a loss of $0.30 per share. Revenue at $514.89 million.
Average Analyst Rating: Hold.
Stitch Fix is an online clothing retailer that delivers whatever clothing items you need right to your doorstep. It started in 2011, but didn’t go public until 2017. It has had some hype moments before, but none like we saw in 2021, where it reached a peak above $110 per share.
The stock was winning the retail battle as the pandemic pushed clothes shopping online.
It had a step up on the competition, so the price rise made sense.
Then it all stopped.
Since that peak, SFIX shares have cratered 90%.
SFIX’s Precipitous Collapse
Source: Optuma.
As you can see in the chart above, SFIX is in a downtrend. But, as I have been writing over at True Options Masters, there are a lot of bargain stocks right now — but you must know where to look. And Stitch Fix may be a company to put on your radar.
We’ll see how things are going with this latest earnings report, but with the stock back under $20 a share, it’s only been this low once before — March 2020.
I’m looking at this stock for a long-term play, but it will start with earnings. Bullish moves on earnings would be a catalyst for jumping into SFIX.
To put in perspective how volatile this stock has been, the options market is pricing in a whopping 10% move on earnings. That eliminates a lot of good options plays because you’ll pay too much of a premium to make profits.
It’s better to wait for the trend that develops after earnings on SFIX than to trade the volatile pre-earnings options environment.
Stock No. 2: DocuSign (Nasdaq: DOCU)
Earnings Announcement Date: Thursday, after the close.
Expectations: Earnings at $0.48 per share. Revenue at $561.62 million.
Average Analyst Rating: Outperform.
DocuSign is a more all-weather company than Stitch Fix. It benefited from people going remote, as it provides cloud-based documents that are easy to sign, but it’s also made all sorts of paperwork easier in our everyday lives.
Maybe that’s why DOCU has “only” dropped 65% from its all-time highs back in September 2021.
DOCU’s 12-Month Volatility
Source: Optuma.
A rapid drop that steep usually only happens in bear markets. Which is what I think these small- to mid-cap stocks are going through. Once high-flying names that saw sales climb during the pandemic are being punished as investors take profits and move to more of a risk-off environment.
That won’t last long, though.
We can watch earnings to see when investors’ appetites for stocks like DocuSign are turning a corner.
DOCU is another stock expecting a 10% move this week on earnings. That’s a big move, even with an earnings announcement.
This may be a great opportunity to sell spreads (a range of options of the same type — either call or put — on the same asset), maybe an iron condor if you can get a wide enough range.
Because traders expect a 10% move, any move above or below that level misses the mark. And I don’t think the market will be right on the head with this one.
With all the fear in the market this week, I don’t see DOCU jumping 15% to 20% this week either.
Regards,
Chad Shoop
Editor, Quick Hit Profits
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