This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

PetSmart Is a 'Heads You Win, Tails You Breakeven' Trade

NEW YORK (TheStreet) -- Specialty retailer PetSmart (PETM) is a dividend-paying stock crushed after reporting slower-than-expected first-quarter growth earlier this week. The market is overreacting and I think the stock is a buy.

As a short-seller, I recognize a heavily shorted stock with increasing earnings per share and a growing dividend is no longer a short candidate if it falls below fair value.

PETM Chart

Short-sellers have called this one right, but they are also intensely crowded with over 17% of the float shorted. Following the price decline the tide has shifted, and short-sellers are planning their exit strategy.

At around $55.30, PetSmart shares are down 24% for the year to date.

On a typical earnings disappointment, it takes two or three days to fully discount the news and form a new support base. Because the stock market on any given day moves on emotion, it also has a strong tendency to overshoot on the way up, and back down again. It's the reason active traders will buy on the third day looking for the dead-cat bounce.

Petsmart is a Friday and Monday dead-cat bounce candidate for traders, but as I will illustrate, the short thesis is no longer valid based on the current and expected financial metrics. It's why I'm motivated to get long Petsmart at this current attractive level as a trade and for long-term dividend investors.

I posted a Real Money Pro trade alert for active traders including an option play with exact entry, profit target, and stop loss that you may want to consider for a trade right now.

Wall Street focused on declining same-store sales of 0.6%. Considering overall retail weakness and specifically in competitors Walmart (WMT) and Target (TGT), I believe the stock decline is a typical overreaction and the stock is a buy.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
PETM $82.98 0.04%
AAPL $126.34 -1.80%
FB $77.47 -1.70%
GOOG $532.03 -1.60%
TSLA $232.17 0.72%

Markets

DOW 17,973.23 -97.17 -0.54%
S&P 500 2,101.18 -13.31 -0.63%
NASDAQ 4,959.9580 -56.9710 -1.14%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs