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One potential earnings short-squeeze trade in the chemical manufacturing complex is
Polypore(PPO), which is set to report results on Wednesday after the market close. This is a technology filtration company, develops, manufactures, and markets specialized microporous membranes used in separation and filtration processes. Wall Street analysts, on average, expect Polypore to report revenue of $173.40 million on earnings of 45 cents share.
This company beat estimates last quarter after missing projections in the previous quarter. In the fourth quarter of last year, it reported net income of 54 cents per shares vs. a mean estimate of a profit of 52 cents per share. Polypore will be going for its fifth consecutive quarter of double-digit revenue growth this quarter. The company has averaged year-over-year revenue growth of 24.1% over the last four quarters.
The current short interest as a percentage of the float for Polypore is extremely high at 28.6%. That means that out of the 46.49 million shares in the tradable float, 13.38 million shares are sold short by the bears. This is a very high short interest on a stock with a relatively low float. If Polypore can produce bullish earnings results, then this stock could easily experience a monster short squeeze.
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From a technical perspective, PPO is currently trading below both its 50-day and 200-day moving averages, which is bearish. This stock plunged back in February from around $54 to $36.60 a share on monster volume. Since that huge drop, PPO has now entered a sideways trading pattern between $33.80 and $38.94 a share. A move outside of that range post-earnings should setup the next major trend for PPO.
If you're a bull on PPO, I would wait until after its report and look for long-biased trades if this stock can manage to break out above some near-term overhead resistance at $37.97 to $38.94 a share with high-volume. Look for volume on that move that's near or well above its three-month average volume of 2.5 million shares. If we get that action, then look for PPO to spike big back towards its next significant overhead resistance levels at $41.75 to $43.97 a share, or possibly even $46 a share if the bulls gain full control of this stock post-earnings.
I would simply avoid PPO or look for short-biased trades if after earnings that breakout never triggers, and then the stock drops back below some major near-term support levels at $35.76 to $33.80 a share on heavy volume. If we get that drop, target an even bigger fall towards $30 to $25 a share if the bears spark a big selloff post-earnings.