BBY stock is trading at nine-year highs, and more gains could be in store
Best Buy stock has rallied almost 54% over the past 52 weeks, breaking out to nine-year highs in the process. What's more, these gains have come amid sector-wide headwinds, with the SPDR S&P Retail ETF (XRT) lower on a year-over-year basis. Still, sentiment across Wall Street is overwhelmingly bearish toward BBY shares, creating a perfect contrarian setup for the outperforming stock.
First of all, 10 of the 15 analysts covering BBY say it's a "hold" or "strong sell." This suggests the shares are overdue for bullish recognition from the brokerage bunch. Meanwhile, short interest makes up a whopping 13% of the stock's float, which equates to more than eight days' worth of buying power, based on average daily volumes. Shorts could begin to cover, which would help lift BBY.
Options activity has also been extremely bearish. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.11, and that ranks in the 76th annual percentile. An unwinding of these put positions could act as yet another upside catalyst for the retail stock.
Near-term BBY options are also pricing in unusually low volatility expectations at the moment. This is based on the equity's Schaeffer's Volatility Index (SVI) of 27%, ranking in just the 6th annual percentile.
Subscribers to Schaeffer's Weekend Trader services received this commentary on April 23.