The shares of Dick's Sporting Goods Inc (NYSE:DKS) are suffering today, after Barclays downgraded the stock to "underweight" from "equal weight." The analyst said Dick's "is not positioned to sell the stylish athleisure product that the industry has evolved into," and pointed to accelerating competitive pressure for the bearish note, which included a price-target cut to $25 from $33. However, while DKS stock is struggling, two other athletic apparel issues could be flashing "buy" signals right now, if past is prologue: yoga concern Lululemon Athletica Inc. (NASDAQ:LULU) and fellow sports gear seller Foot Locker, Inc. (NYSE:FL).
Last week, we made our bearish case for DKS stock, which was last seen 2.2% lower to trade at $30.83. The shares have been backing down from multiple layers of resistance in the $35 neighborhood, yet optimism in the options pits remains prevalent. An exodus of option bulls -- or a rush of additional short sellers -- could drive Dick's shares even lower in the near term. Likewise, nine of 24 analysts maintain "strong buy" opinions on the equity; another round of downgrades could also hurt DKS.
Lululemon Athletica stock has weathered the recent broad-market pullback in stride, and was last seen 0.7% higher at $79.16. In fact, the shares have spent the last several weeks trading just south of $80, but touched an annual high of $81.92 on Jan. 8, thanks to a strong earnings showing. Nevertheless, the stock's Schaeffer's Volatility Index (SVI) of 28% is in just the 6th percentile of its annual range, pointing to relatively muted volatility expectations being priced into short-term LULU options.
Since 2008, there have been just three other times where LULU stock was trading within 2% of a 52-week high and sported an SVI in the bottom 10% of its annual range, per data from Schaeffer's Senior Quantitative Analyst Rocky White. One month after those signals, Lululemon shares were up 4.44%, on average. From the equity's current perch, a similar rally would place the stock around $82.67 -- in new-high territory.
Despite LULU's ascent of more than 50% in the past nine months, options-buying trends point to pessimism. Thesecurity's 50-day put/call volume ratio of 1.15 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is in the 97th percentile of its annual range, hinting at a healthier-than-usual appetite for bearish bets over bullish in the past 10 weeks. An unwinding of skepticism in the options arena could propel Lululemon stock even higher.
The shares of Foot Locker are down 2.7% at $47.06, at last check, swooning in sympathy with Dick's. However, Wedbush this morning added FL to its Best Ideas list, and the stock tends to perform well in the month of February.
Specifically, Foot Locker is among the top 25 S&P 500 stocks to own this month, ending higher in seven of the past 10 years. What's more, the equity has averaged a February gain of 5.61%, looking back a decade, per data from White. From current levels, a similar rally would place the stock around $49.70.
Although FL shares have rallied close to 60% in just the past three months, short sellers have been piling on. Short interest grew 12.9% in the most recent reporting period, and now represents nearly 12% of the stock's total available float. At the security's average pace of trading, it would take about a week to buy back all of these bearish bets -- plenty of fuel for a short squeeze to lift Foot Locker stock even higher.
It's also worth noting that the company is expected to report earnings on Feb. 22, and the shares rallied more than 28% in the day after the firm's last earnings report. Over the past year, in fact, FL shares have handily exceeded options traders' volatility expectations, as evidenced by the equity's high Schaeffer's Volatility Scorecard (SVS) of 97. Plus, options traders looking to speculate on Foot Locker stock's near-term trajectory can still do so at a relative discount. The shares' SVI of 41% is in just the 26th percentile of its annual range, even with earnings not too far away.