The Nasdaq’s downside reversal Thursday fueled selling in a lot of growth stocks, including Dow Jones stock Salesforce (CRM), which slumped nearly 2% in higher volume and contributed to the Dow’s 600-point decline. CRM stock has had trouble attracting buyers after shares gapped down on April 15. It’s one of several high-profile earnings reports due in the coming week, along with Leaderboard stock Cava (CAVA), retail juggernaut Abercrombie & Fitch (ANF) and new issue Viking Holdings (VIK).
X
Besides Salesforce, other top-performing technology stocks on the earning calendar include Dell (DELL), HP (HPQ), Pure Storage (PSTG), Nutanix (NTNX) and NetApp (NTAP).
CRM Stock Trends Lower
Salesforce is only 12% off its high as it consolidates gains, but CRM stock suffered some technical damage after a sharp break of the 10-week moving average in the week ended April 19.
The catalyst for the selling was reports that Salesforce was in late-stage talks to acquire data management software provider Informatica (INFA). But talks stalled after both firms couldn’t agree on a price, which was rumored to be around $10 billion.
Salesforce has gapped up in price the last three times it’s reported earnings. When the software giant reported earnings in late February, adjusted profit increased 36% year over year to $2.29 a share. Revenue climbed 11% to $9.3 billion. The company also declared a dividend of 40 cents a share.
Salesforce guided earnings for the April-ended quarter above expectations. Revenue guidance was mostly in line. But the company’s full-year revenue guidance of $37.7 billion to $38 billion was below the $38.62 billion consensus.
President and Chief Operating Officer Brian Millham said that while demand for artificial intelligence products is strong, it didn’t factor into the company’s guidance.
Results for the April-ended quarter are due Wednesday after the close. The FactSet consensus is for adjusted profit of $2.24 a share, up 124% year over year. Revenue is expected to rise 11% to $9.2 billion.
Watching Abercrombie, Cava, Viking
Abercrombie & Fitch was a huge winner last year, up nearly 300%. But in early March, investors sold Abercrombie stock despite news that revenue growth accelerated for the third straight quarter.
The company on March 8 reported adjusted profit of $2.97 a share, up 267%. Revenue rose 21% to $1.45 billion. Abercrombie ended with a decline of nearly 10% that week, and the weak action marked the start of a consolidation phase. The pullback came even though Abercrombie raised its full-year revenue guidance above consensus.
Post earnings, the highflying retailer corrected a relatively mild 23% off its high before starting a fresh rally. After a breakout last week, Abercrombie is just past the 5% buy zone from a 140.28 buy point, with a relative strength line in high ground.
Results for the April-ended quarter will be released Wednesday before the open. Adjusted profit is seen jumping 341% to $1.72 a share, with revenue up 15% to $965 million.
Meanwhile, results from fast-casual Mediterranean chain Cava will be out Tuesday after the close. Cava was added to the Leaderboard model portfolio on April 26 at 64.31 when it was bouncing off its 10-week line.
Ron Shaich, who guided Panera Bread through a major growth phase when it was a publicly-traded company, has served as Chairman of Cava’s board of directors since 2018.
Cava went public in mid-June last year at 22 a share. It’s more than tripled since then as Wall Street bets on more strong growth ahead. Cava is still early in its expansion phase.
Cruise line operator Viking is trading above its IPO price of 24 after its debut in April. Results are due Tuesday before the open. Viking is trying to clear an IPO base with a 24.95 entry.
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works, and what a call-option trade recently looked like for CRM stock.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Further, others already might have broken out and are getting support at their 10-week lines for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
Join IBD experts as they analyze leading stocks in the current stock market rally on IBD Live
A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at cboe.com. Also, make sure the option is liquid, with a relatively tight spread between the bid and ask.
Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
CRM Stock Option Trade
When Salesforce stock traded around 280.50, a slightly out-of-the-money weekly call option with a 282.50 strike price and a May 31 expiration came with a premium of around $8.40 per contract. That was 3% of the underlying stock price at the time.
One contract gave the holder the right to buy 100 shares of Salesforce at 282.50 per share. The most that could be lost was $840 — the amount paid for the 100-share contract. To break even, Salesforce would need to rise to 290.90, factoring in the premium paid.
Keep in mind that this is not a trade for a smaller portfolio. The reason is that taking delivery of 100 shares of Salesforce in the above scenario would cost $28,250.
The expected move in the options market for Salesforce, based on the at-the-money strike price of 280, was about 18-19 points up or down. That’s found by adding the at-the-money call premium and the put premium for the May 31 contract.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
YOU MAY ALSO LIKE:
Best Growth Stocks To Buy And Watch
Catch The Next Big Winning Stock With MarketSurge
IBD Stock Of The Day: See How To Find, Track And Buy The Best Stocks
IBD Digital: Unlock IBD’s Premium Stock Lists, Tools And Analysis Today
Barbara Terrio is a seasoned business journalist, delving into the world of finance, startups, and entrepreneurship. With a knack for demystifying complex economic trends, she helps readers navigate the business landscape. Outside of her reporting, Barbara is an advocate for financial literacy and enjoys mentoring aspiring entrepreneurs.
