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Fire in a Spray Can – Downside Travels on Lubed-up Loser (WDFC,GNRC)

Posted on November 16, 2020

We’ve got one to close before this week’s offering.

It was opened last Thursday in a communiqué entitled “It’s not the people who vote that count. It’s the people who count the votes.”

There, you’ll recall, we urged you to sell the GNRC November 20th 220/230 CALL spread for $4.70 and buy the GNRC November 20th 230/220 PUT spread for $5.30.  Total debit on the trade was $0.60.

And now?

The short CALL spread is worth $2.45 (3.00/0.55) and the long PUT spread is fetching $6.50 (14.00/7.50).

Buy back the first* and sell off the second**, and you pull in $4.05 on $0.60 laid out.

And that’s a very quaint 575% in just four days!

* Buy back the short 220 CALL and sell the long 230 CALL.

** Sell the long 230 PUT and buy back the short 220 PUT.

And Retire to Baja!

You’re welcome to try your luck by waiting until the end of the week – it’s possible you’ll see the stock cheaper.  And that would definitely increase your winnings.

But then again, it might not happen…

______________________________

 

And now for this week’s effort.

We’re getting slippery with a trade on the WD40 Company (NASDAQ:WDFC), whose lubricated rise of late appears to be losing its grip.

WDFC shares popped nearly 20% in a single session in late October, after an earnings beat that, in retrospect, may have been more grease than meat.

Do-it-yourself fix-ups during the Batflu (and a lot of kids’ bike chains, apparently) were said to be the reason for the boost in sales.

But that’s a bit hard to swallow.

Fundamentally, too, the stock looks rusty.

To wit –

  • Current P/E is a squeaky 59.0 and
  • Price to Book is all smeared-up at 22.1 (!).
  • The stock offers a 1% yield.  But even with the earnings beat, TTM earnings are down five percent from the prior year and are expected to grow by just 10% in the year ahead (even though the company has never hit that growth target over the last five years).

In short, this is not a growth story, nor can the “isolation renovation” trend – as their CEO calls it – be expected to continue.

It was a one-off.  The follow through is over.  And the shpritz is about to spittle.

Take a look at

Breakeven is 260.20 (again, current price is $260.03).

With kind regards,

Hugh L. O’Haynew

 

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