Another Share Drop Following Strong Earnings Points to a Rebound Opportunity

It’s a simple trading strategy: Find a company that’s performing well and just posted great quarterly earnings numbers. Then, if shares drop because the company’s guidance isn’t bullish enough, buy the dip and wait for the rebound, following the fundamentals.

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  • That’s as strategy likely to pay off well in this market throughout earnings season. One such trade has already presented itself in Walgreens Boots Alliance (WBA).

    The drugstore chain posted great growth, but shares got knocked down last week following earnings anyway. That partially unwound some of the firm’s gains over the past year, and the company was already just slightly lagging the S&P 500.

    That’s even as the company topped earnings estimates thanks to stronger pharmacy sales, and the company swung to a profit in the most recent quarter.

    The reason for the selloff? Concerns that the jump in sales are being driven by Covid vaccines, and may dry up down the line.

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  • That selloff seems slightly unfounded for the moment, given the company’s expectations for 10 percent earnings growth, which remained the same during the latest earnings report.

    Action to take: Shares are likely to rebound. At current prices, investors can grab a 3.6 percent dividend yield, a good starting point, especially for a retail firm.

    For traders, a rebound should bode well for the October $50 calls. They’re likely to move back in-the-money in the coming weeks, and the company’s earnings miss gave these options a sale price of about $2.30, or 50 percent off the pre-earnings report price.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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