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One heavily shorted stock that could be ripe for a big earnings short squeeze is
Peet's Coffee & Tea(PEET), which is set to release numbers on Tuesday after the market close. This company is a specialty coffee roaster and marketer of fresh roasted whole bean coffee and tea. Wall Street analysts, on average, expect Peet's Coffee & Tea to report revenue of $88.70 million on earnings of 32 cents per share.
My thesis for playing Peet's is to piggyback off the recent blowout quarter from
Green Mountain Coffee Roasters(GMCR), which led the stock to rocket higher due to its large short interest, jumping from under $90 a share to over $105 a share. If the coffee market is truly hot, then Peet's could be setting up for a similar move.
The current short interest as a percentage of the float for Peet's is an extremely large 23.6%. That means that out of the 12.60 million shares in the tradable float, 2.98 million are sold short by the bears. This is an extremely low float with a high short interest, so a strong quarter out of Peet's that is anything close to Green Mountain's could send this stock soaring.
From a technical standpoint, shares of Peet's recently put in a double-top chart pattern at around $62.86 to $62.53 a share. That said, the stock is still trading above both its 50-day and 200-day
moving averages, which is bullish. The stock has also recently found some buying interest at around $57.50 a share.
If you want to play Peet's for the long side, I would wait until it reports and would be a bigger buyer as long as the stock holds above $57.50 a share. If it holds that price zone, you could enter this name and then add to any long position once it takes out $62.86 on big volume. One could also wait until the report and just buy Peet's if it breaks out above $62.86 on
I would short Peet's only if it breaks below $57.50 on big volume following its earnings report. I would add to any short trade if you see the stock trade through its 50-day moving average of $55.67 a share on strong volume.
Peet's is on Jim Cramer's
list of stocks to watch this week, though his recommendation is to avoid the stock.