Party City (PRTY – NYSE)
Back in January, Jimmy Lamz stuck out his neck and advised his followers to short Party City PRTY – NYSE. His theorem was straightforward: There’s nothing for sale in these stores that you can’t buy for less across the street at Target TGT – NYSE or Walmart WMT – NYSE…
Party City offers no real competitive advantage over alternative online retail/e-commerce options and I believe it represents the best short opportunity in 2016. Additionally, the financials look poor and the future earnings prospects are grim in a highly competitive marketplace with strong and more diversified competition. It is heavily levered (2.76b in liabilities and a debt/equity ratio of 2.46!) and underperforming. Management is offering very weak arguments for the lackluster performance of the business, and the majority of future operating income is going to be swallowed up by interest payments.
It might have been the trade of Lamz’s life because PRTY fell some -35% over the next 19 trading days. But then, word began to circulate around Wall Street’s back rooms that PRTY was some kind of hidden gem in the dirt that would shock everyone come its next quarterly report. Prices then rallied more than 53%.
Now we have those quarterly numbers, and some headlines to go with them. One well-known news service claims that PRTY beat estimates on revenue and earnings. Another says that revenue is only par, and a third says it was a miss on both but “the company is making upbeat comments about current year sales, as well as highlighting a reduction in expenses.”
The upshot? PRTY rallied another 16% on this “news.”
So we did the one thing none of these party animals did. We checked PRTY’s numbers, and frankly, they stink. Quarterly revenue grew 2.3% year-over-year, no earnings growth is posted, earnings per share is $0.03, and the trailing P/E is 491.35. Keep in mind that while this is a relatively new IPO, the company has been around since 1947. Do these loons think they are buying growth? Really?
Bottarelli Research Tip: It’s only been a little more than a year since going IPO, but we’re already seeing a reasonably clear pattern with PRTY. The typical reset after a rally is -33.05% over eight weeks. If PRTY gives us another full down-cycle, it will drop to $8.79 by mid-May. We can spot a conservative target at $11.40. And believe it or not, there really is an option chain available for this ridiculous stock.
On the other hand, if you don’t want to play a tiny outfit like PRTY, Bottarelli Research LEAPS members have scored 31%, 36%, 35%, and 25% gains off large-caps like BUD, F, DHR and UTX — all within the past few weeks. And right now, we’re analyzing a chart that can easily bring in another 30% winner, but that might be too conservative. Our research indicates select option contracts could gain upwards of 230% in nine weeks. Want to learn more about this trade? Then see below…
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