בס״ד

What Ever Happened to Adidas Shirts and Corduroy Pants? (TPR)

Posted on January 27, 2021

Coming at you early this week due to the added holiness of Tu B’Shvat.

Tapestry Inc. (NYSE:TPR) is the name of a company that sells overpriced accessories to people who still care about those sorts of things.

And as you can imagine, during the Batflu lockdown the company’s earnings took a hit.

Stores were shuttered, and only after folks returned to the streets did the company’s shares begin once again to climb.

That said, it’s our contention that the climb was overdone and is now complete.  As we’ll demonstrate below, there’s nothing left to squeeze from this old wallet.

Consider –

  • The company posts NO P/E, a function of negative earnings at present,
  • Has a Price to Book ratio of 3.59 (egad!),
  • Pays no dividend,
  • Reported an earnings decline of 207.70% for the year,
  • A 29.30% decline for the last five years,
  • And carries too much debt (debt/equity is 0.91)

The company’s shares were up 16% in 2020, but as the charts below show, it all transpired in the fourth quarter, when a speculative mania combined with a better than expected holiday season to create a demonic wind that swept through across the land, dehydrated the brains of the masses and lifted valuations to extremes we haven’t seen since the occipital breakdown of 2001.

She’s Overbought!

Take a look now at the daily chart since the Batflu bottom –

Technically…

  1. TPR experienced an extended bout of overbought in October/November and again reached near 80 just after New Year’s (in green).
  2. We’ve seen negative divergence for almost two months now, as the buying fever starts to cool.
  3. That lack of appetite also shows up in the volume figures (in black), where nearly seven million shares a day in November has given way to a mere four million traded of late.
  4. A bearish ascending triangle (in red, at top) was sundered just over a week ago, and we believe we’re now on the verge of a more meaningful tumble.
  5. With gaps to fill at 31.50 and 26.50, we say it’s at least to the latter level the stock is now headed.

Now take a peek at the weekly –

The weekly chart only adds to the woes –

  1. RSI is overbought (in green).  From January 1st, we’ve watched the weekly number ascend above 80 and only last week come off.  That’s very bearish.
  2. At the same time, MACD has begun to roll over, indicating the descent is gathering steam.
  3. Most damning, though, is the broader price picture (at top), which indicates the latest move is just an upside retracement in a broader, secular decline, and that we’ve just bumped up against significant resistance at the down-trending weekly moving averages (in blue).
  4. Fibonacci retracement calculations see a decline to 25.80 and potentially 19.85 (in purple).

And it’s to that first level we’re structuring our trade.

A Jew and His Gold recommends you sell the TPR May 21st 35/40 CALL spread for $1.25 (3.00/1.75) and buy the TPR May 21st 35/25 PUT spread for $4.55 (5.50/0.95).  Total debit on the trade is $3.30.

Rationale: we see downside potential for TPR between 26 and 23, so the PUT spread should capture the greater part of that decline – if not all.

The short CALL spread helps us pay for it, while limiting our loss on the initiative to $8.30 (should TPR close above 40 at expiry).

Maximum gain on the affair is $6.70.

Breakeven arrives at $31.80 (current price is $32.78).

Many happy returns,

Matt McAbby

 

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