The Nasdaq’s downward reversal on Thursday fueled selling in many growth stocks, including Dow Jones stock. Selling power (RCMP), which fell nearly 2% on higher volume and contributed to the Dow’s 600-point decline. CRM stock struggled to attract buyers after shares fell on April 15. This is one of several high-profile earnings reports expected in the coming week, with Ranking action How are you (HOW ARE YOU), retail giant Abercrombie & Fitch (ANF) and new number Viking funds (VIK).
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Besides Salesforce, other top-performing tech stocks on the earnings calendar include Dell (DELL), HP (HPQ), Pure storage (PSTG), Nutanix (NTNX) And NetApp (NTAP).
CRM Stock Trends Downward
Salesforce is only 12% off its high as it consolidates gains, but CRM stock suffered some technical damage after a sharp price breakout. 10-week moving average in the week ended April 19.
The catalyst for the sell-off was reports that Salesforce was in late-stage talks to acquire the data management software provider. Computer science (INFA). But negotiations broke down after the two companies failed to agree on a price, which was rumored to be around $10 billion.
Salesforce has seen a price increase the last three times its earnings have been reported. When the software giant reported earnings in late February, adjusted earnings rose 36% year over year to $2.29 per share. Revenue climbed 11% to $9.3 billion. The company also declared a dividend of 40 cents per share.
Salesforce guided its earnings for the quarter ended April above expectations. Revenue forecasts were largely in line. But the full-year revenue forecast of between $37.7 billion and $38 billion was lower than the consensus $38.62 billion.
President and COO Brian Millham said that while demand for artificial intelligence products is strong, it has not been factored into the company’s guidance.
Results for the quarter ending in April are expected after the close on Wednesday. The FactSet consensus calls for adjusted earnings of $2.24 per share, up 124% year over year. Revenue is expected to rise 11% to $9.2 billion.
Watch Abercrombie, Cava, Viking
Abercrombie & Fitch was a big winner last year, up almost 300%. But in early March, investors sold Abercrombie shares despite reporting accelerated revenue growth for the third straight quarter.
The company reported adjusted earnings of $2.97 per share on March 8, up 267%. Revenue rose 21% to $1.45 billion. Abercrombie finished down nearly 10% that week, and the stock’s weakness marked the start of a consolidation phase. The decline occurred even though Abercrombie raised its full-year revenue forecast above consensus.
Following the results, the high-flying retailer corrected a relatively slight 23% correction from its high before beginning a new rally. After a breakout last week, Abercrombie just moved above the 5% buy zone from a 140.28 buy point, with a relative strength line overhead.
Results for the quarter ended in April will be released Wednesday before the opening. Adjusted earnings are expected to climb 341% to $1.72 per share, with revenue up 15% to $965 million.
Meanwhile, results from Mediterranean fast-casual chain Cava will be released after the close on Tuesday. Cava has been added to Ranking portfolio model on April 26 at 64.31 as it bounced 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. That figure has more than tripled since then, as Wall Street bets on stronger growth to come. Cava is still at the beginning of its expansion phase.
Cruise operator Viking is trading above its IPO price of 24 after its April debut. Results are expected Tuesday before opening. Viking tries to clear a Basis of IPO with entry at 24:95.
Options Trading Strategy
A basic earnings options trading strategy – using call options – allows you to buy a stock at a predetermined price without taking on a lot of risk. Here’s how the options trading strategy works and what a call option trade for CRM stock looked like recently.
First, identify top-rated stocks with a bullish chart. Some could establish themselves on solid foundations in the start-up phase. Additionally, others may have already broken out and are getting support on their 10-week line for the first time. And a few might be trading close to the highs and refusing to give up much ground. Avoid extensive inventories that extend too far beyond appropriate entry points.
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A call option is a bullish bet on a stock. Put options are bearish bets. A call option contract gives its holder the right to buy 100 shares of a stock at a specified price, called the strike price.
Once you have identified a bullish pattern in the earnings calendar, check the strike prices on your online trading platform or cboe.com. Also make sure the option is liquid, with a relatively tight bid-ask spread.
Look for a strike price just above the underlying stock price – that is, out of the money – and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at that time. In some cases, an in-the-money strike price is acceptable as long as the premium is not too high.
Choose an expiration date that matches your risk objective. But keep in mind that time is money in the options market. Shorter term expiration dates will have cheaper premiums than those further out. Buying time in the options market costs more.
Trading CRM stock options
When Salesforce stock was trading around 280.50, a slightly out-of-the-money weekly call option with a strike price of 282.50 and an expiration on May 31 came with a premium of around $8.40 per contract. This represented 3% of the underlying stock price at the time.
One contract gave its 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 reach 290.90, taking into account the premium paid.
Keep in mind that this is not a trade for a smaller wallet. The reason is that delivering 100 shares of Salesforce stock in the above scenario would cost $28,250.
The expected move in the options market for Salesforce, based on the strike price at 280, was approximately 18-19 points up or down. This is obtained by adding the call premium at the parity and the put premium for the May 31 contract.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more analysis and information on the stock market.
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