בס״ד

Let Them Eat Vaccines! When the Batflu Goes Drive-Thru. (MIDD)

Posted on March 11, 2021

Middleby Corp. (NASDAQ:MIDD) makes food prep machinery for the restaurant business.

You’ll recall that restaurants have been closed (and going bankrupt) across broad swaths of the planet for the last year.  But that hasn’t stopped the stock of this tool and dye outfit from quadrupling – with the help of massive downward earnings revisions, of course.

Could it be someone’s about to be served a FOUL-SMELLING STEW?!

We think so.

In fact, we’re so unimpressed with MIDD shares that we’ve decided to slash her middle “B” grading and designate her an outright failure.

Consider, first, the fundamentals –

  • P/E is a walloping 44.79,
  • Price to Book is 4.69,
  • There’s no dividend on offer,
  • EPS is down this year by 40.60%, and
  • Q/Q Sales and Earnings are both down, by 7.40% and 51.90%, respectively.

All of which is bad enough… without an alleged pandemic sweeping the world, shutting down eateries left and right and making paranoid distance-lovers of us all.

AND…

The company facing a debt issue, as well.  If the restaurant business doesn’t make a robust recovery, all the discounting in the current stock price will likely collapse.  Middleby will struggle just to pay off its debt.

Now, the chart –

The technicals show –

 

  1. An overbought 80 read struck just days ago (in green), while
  2. MACD rolls over, and
  3. Price bangs her head on the top of a seven month trend channel (in red).

Taken together, we see an imminent decline to the simple Fibonacci retracement mark at 120 – precisely where the rising 137 day MA currently resides.

And we’re playing it like this –

A Jew and His Gold recommends you consider setting the MIDD June 18th 170 synthetic short for a debit of $3.00 (13.40/16.40*).  Set a STOP buy for the shares at 175.

*[Sell the 170 CALL and buy the 170 PUT]

Rationale: If our read of the leaves is correct, a stall is now in process and the rollover should commence within days.

The 170 short is well priced, and will start turning a profit at $167 – just $1.25 (0.7%) below the current price of $168.25.

Maximum gain on the trade is unlimited.

Maximum loss – with the STOP in place – is $8.00, and will occur if MIDD climbs above $175 by expiry.

We don’t see that as likely in the short term, as the technicals are clearly indicative of a top.

In the longer term, we’ll be out of the trade on any downturn, so we needn’t fear a bounce higher toward summer.

Should the STOP be triggered, an immediate STOP sell at 170 should be set to keep the trade square.  There should be either an open STOP buy or sell on the trade at that level until we close.

And may the G-d of Israel be with you.

Many happy returns,

Matt McAbby

 

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