Technology products and services retailer Best Buy Co., Inc. (BBY - Get Report) is set to report earnings on Tuesday before the open. Wall Street analysts expect Best Buy to earn 63 cents per share on revenue of $8.66 billion.
Shares of Best Buy have been on fire over the last six months, with the stock up a whopping 40%. BBY stock has been so hot it just recently hit a new 52-week and all-time high of $63.32 a share on Thursday. Competition from the likes of Amazon.com Inc. (AMZN - Get Report) and Wal-Mart Stores Inc. (WMT - Get Report) have not been felt at Best Buy, since the company has beat earnings estimates in the last four quarters. Will that always be the case?
On Monday morning, Barclays analyst Matthew McClintock reiterated his overweight rating on Best Buy and raised his estimates ahead of the quarter, but left his price target the same at $65 a share.
In a note to investors last week, Jefferies Group retail analyst Daniel Binder said, "Based on our field checks and other research, we believe Best Buy should be able to grow domestic same-store sales at the high end or better than management's plan." Binder also raised his sales and earnings estimates for Best Buy and reiterated a hold rating with a $60 price target.
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The current short interest as a percentage of the float for Best Buy is pretty high at 11.8%. That means that out of the 268.91 million shares in the tradable float, 31.96 million shares are sold short by the bears. Shorts have been getting crushed all year in this stock, but that pain might not be over, since Best Buy's short interest ratio is 11.2 days-to-cover. Another strong quarter and the shorts are going to be in serious trouble post-earnings.
With this in mind, let's take a look at the chart for Best Buy and see if it's flashing a strong signal heading into its quarterly report.
If you take a look at the chart for BBY, you'll notice that this stock has been in a strong uptrend over the last six months, with shares rallying off its low of $41.11 to its recent high of $63.32 a share. During that uptrend, this stock has been consistently making higher lows and higher highs, which is bullish price action. That strong trend has now pushed BBY stock within range of triggering a major breakout trade post-earnings.
Traders should now look for long-biased trades in BBY stock after it reports if it manages to break out above some near-term overhead resistance levels between $63 and its 52-week high of $63.32 a share with strong volume. Look for volume on that move that hits near or above its three-month average of 3.62 million shares.
If that breakout develops post-earnings, then this stock will set up to make a run at $70 to $75, or even $80 a share. I would probably avoid getting long ahead of the quarter with new positions since the stock is up so much on the year, but look to play BBY stock post-earnings for a potential big short-squeeze if the numbers are strong and that breakout triggers.
The bottom line, shares of Best Buy are in a strong uptrend and another positive quarter could be on deck. If Best Buy delivers a bullish quarter and outlook, then the shorts are going to be on the run once again. Traders can simply stop out below the 50-day moving average of $57.83 a share if that breakout fails to sustain on a closing basis after the report.
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