When Beauty is Only Skin Deep – the Naked Truth Behind a NASDAQ-Listed Facial Scam (SKIN)

We generally steer clear of new issues.  There’s enough uncertainty in the trading game to avoid adding another layer of instability to the process of trade selection.

And yet, there are times, too, when the speculative bug bites, and the rabid desire to throw money at a security with little to no trading history becomes overwhelming.

That’s precisely what happened this week, when we stared into the fleshy abyss represented by the chart of The Beauty Health Company (NASDAQ:SKIN), an outfit that sprung to life just last November.

The company is a big zero fundamentally, even though it possesses a market cap of $2.2 billion.

Consider –

• Without any earnings, P/E is non-existent,
• Though that hasn’t stopped analysts from giving it a forward P/E of 180.78. (!)
• Dividend yield is also non-existent, while
• P/B is 2.17.

All told, there’s very little here to chew on.

“But it’s a growth story!” you say.

And we say, “Great!  Bring it on!”

But it sounds more like hype.

Viz –

“Approachable”?

“Ecosystem”?

“Democratize”?

“Hydradermabrasion”?

C’mon!

There’s so much hilarity stuffed into this bit of ballshort that we have no sense of where to start unpacking it.

So we won’t.

Consider it offered without comment.

You’ll have a hard time convincing us they aren’t just carpetbaggers.

Snake-oil salesmen.

Nothing more.

But soon enough they’ll get figured out.

It may even happen in the next few weeks.

Now take a look at the chart –

Technically, the leather looks stretched.

Consider –

1. After a two month rise of exactly 100% inside the strict confines of a steep trend channel, (in red),
2. Price has now broken below the lower trendline.  And that portends weakness.
3. Volume figures (in black) also speak to weakness – a) at the highs, five times the daily average was churned to eke out a gain of just twelve cents, b) then again, last Friday, an equal turnover produced a gain of just a nickel.  That’s what’s called ‘burning ammunition’ in stock parlance, and it makes clear the diminishing returns available for SKIN bulls.  In short, it don’t look good at all.

4. Beyond that, we have two overbought RSI signals in the last six weeks, the last of which was protracted (in green), and
5. A MACD indicator that has rolled lower.
6. Taken together, the picture is bearish, and if Fibonacci retracement calculations can be applied (which may not be the case because of a lack sufficient data points), the next stop down could be either $15.72 or $13.43.

Both of which make for a perfectly tradable speculative opportunity.

And we’re structuring it like this –

A Jew and His Money recommends you consider selling the July 16^th 17.50/20.00 CALL spread* for a credit of $0.50 (0.75/0.25), and buying the July 16^th 17.50 PUT for $0.85.  Total debit on the affair is $0.35.

[*Sell the 17.50 CALL and buy the 20.00 CALL.]

Rationale: the trade is speculative because there’s less than three weeks remaining until expiry.

That said, it costs a mere $0.35 to play (though you can purchase multiple units, should you please) and breakeven arrives at $17.15 – a mere 2.8% below Friday’s close.

Theoretically, your profits are unlimited.

While your maximum loss is limited to $2.85 (spread between the two CALL strikes plus initial debit).

We’ll look to close out on any weakness before expiry.

Good Jews and Noahides!

The Holy One Blessed Be He is the True Judge.

He doesn’t play games.

Get it right.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew