Retail Rebound Plays Look Attractive Relative to the Risk

Most companies looking to survive in the past year moved heavily towards ecommerce sales. However, a few companies have a business model known as the “found treasures.” They offer steep discounts compared to the non-sale price, but the catch is that buyers have to find them by scrounging through a physical store.

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  • One such play is Ross Stores (ROST). Shares are just now climbing back to pre-pandemic levels. And shares look like a bargain as shoppers look forward to perusing those treasures once again.

    With an earnings drop of 64 percent in the past year, it’s clear how steep the damage has been to shares. While the company has managed to barely hang on to profitability, earnings have been so low that shares trade at over 130 times current earnings.

    With an expected rise in earnings, however, that’s likely to drop to 25 or lower. And an earnings rebound looks likely as economic restrictions ease and customers appear more comfortable with in-store shopping.

    Action to take: The May $125 calls, which last traded for about $6.50, look like an attractive way to play the ongoing uptrend in shares here. The option stands a good chance of moving in-the-money in the coming months, offering potential high double-digit profits.

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