Analysts and options traders are pessimistic toward the equity that's up 58% in 2020
The shares of Cree, Inc. (NASDAQ: CREE) are up 0.8% to trade at $72.91 at last check, just a day ahead of its fiscal fourth-quarter earnings report on Tuesday, July 18. Though the security is already enjoying a 57.9% year-to-date lead with support from its 10-day moving average, more upside may soon be on the horizon. That is because the stock's recent seven-year-high of $74.72 on August 11 comes amid historically low implied volatility (IV), which has been a bullish combination for CREE in the past.
According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times in the past five years when the stock was trading within 2% of a 52-week high, while its Schaeffer's Volatility Index (SVI) sat in the 20th percentile of its annual range or lower -- as is the case with CREE's current SVI of 53%, which sits just above the 18th percentile of its 12-month range. The data shows that one month after these signals, the security was higher, averaging a one-month return of 12.3%. From its current perch, a move of similar magnitude would put CREE above the $81 mark, a level that has not been reached since 2013.
Analysts are mostly hesitant toward CREE, with eight of the 12 in coverage carrying a tepid "hold" or worse rating, while the remaining four call it a "buy" or better. Meanwhile, the 12-month consensus target price of $58.15 is a whopping 20.2% discount to current levels, meaning upgrades and/or price-target hikes could be in store for the equity.
A short squeeze could fuel even more tailwinds. Short interest is down 1.7% in the most reporting period, yet the 12.58 million shares sold short make up roughly 12% of the stock's available float, or almost two week's worth of pent-up buying power.
That pessimistic sentiment is echoed in CREE's options pits, where puts are clearly preferred. The security sports a 50-day put/call volume ratio of 1.05 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 93rd percentile of its annual range. This suggests a healthier-than-usual appetite for bearish bets of late, and unwinding of this pessimism could stoke short-term tailwinds.
What's more, CREE's Schaeffer's put/call open interest ratio (SOIR) stands higher than 95% of readings from the past year, implying short-term options traders have been more put-biased than usual. Should some of this pessimism begin to unwind, it could propel the manufacturing stock even higher.