World Acceptance

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A potential earnings short-squeeze trade in the financial services complex is World Acceptance ( WRLD), which is set to release numbers on Thursday before the market open. This company operates a small-loan consumer finance business in 12 states and Mexico. Wall Street analysts, on average, expect World Acceptance to report revenue of $133.85 million on earnings of $1.50 per share.

Recently, FBR analyst Bob Ramsey said that World Acceptance is one of the names within FBR's coverage universe with the best chances to surprise to the upside, given its strong share repurchase activity that does not appear to be fully in consensus numbers. Stephens analyst John Hect echoed the same thoughts, saying he expects upside to earnings due largely to increased share repurchase activity. That said, Herb Greenberg has raised some issues with WRLD.

The current short interest as a percentage of the float for World Acceptance is extremely high at 25%. That means that out of the 10.60 million shares in the tradable float, 3.11 million shares are sold short by the bears. Any solid earnings news out of this company could easily kickoff a monster short squeeze, since the short interest is so high and the float is extremely low.

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From a technical perspective, WRLD is currently trading above its 200-day moving average and right below its 50-day moving average, which is neutral trendwise. This stock has found some big-time buying interest for the last month and change whenever it's pulled back toward the $65 to $64.56 levels. Shares of WRLD broke out above some past resistance levels at around $70 to $71.08 a share a few weeks ago, and it subsequently ran up to a near-term high of $75.68 a share. Since triggering that breakout trade, shares of WRLD have moved back below those breakout levels and it's now trending right around its 50-day moving average of $67.82 a share.

If you're in the bull camp on WRLD, then I would look for long-biased trades after earnings if this stock manages to trigger a near-term breakout above overhead resistance at $69 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 143,863 shares. If we get that move, then WRLD could easily short-squeeze and take out its recent high of $75.68 a share post-earnings.

I would simply avoid WRLD or look for short-biased trades after earnings the stock fails to trigger that breakout, and then moves back below its 200-day moving average of $66.07 and below those major support zones at $65 to $64.45 a share with heavy volume. If we get that move, then WRLD could easily fall towards $62 to $58 a share if the bears pound this stock lower post-earnings.

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