DailyPlay – Opening Trade (EL) – April 2, 2024

EL Bullish Opening Trade Signal

Investment Rationale

We’ve seen a noticeable uptick in volume and interest in EL, after struggling significantly for the last two years to formulate a turnaround. Has EL finally bottomed and proven that its business is investable again? In my opinion with its strong expected future growth and high margins, EL is quite undervalued and offers an attractive risk/reward for bullish exposure. 

Technical Analysis

After peaking at the end of 2021 around $375, EL has had a hard fall from grace, down over 70%, to just shy of $100 at the end of last year. Since then, the stock has continued to complete a bottoming formation and has now printed 3 successful higher lows. This suggests that the downtrend has completed and is now a potential candidate to reverse back into a bullish trend. The stock has made multiple attempts to break out above $160. If the stock can break above $160, it would start to target the low $200’s and a $235 gap fill with a stop just below $140. 

EL – Daily

Fundamental Analysis

While EL’s forward earnings ratio may seem high initially at 36x, we have to consider the over 20% EPS growth rate that is expected for this year and nearly 88% expected for next year. Couple that with gross margins that stand at 70%, EL stands heads and shoulders above its peers and trades at a relative discount to its own history. If we use average historical valuations of 46x forward earnings, EL’s fair value sits around the $235 gap-fill area. 

Trade Details

Strategy Details

Strategy: Long Call Vertical Spread

Direction: Bullish Debit Spread

Details: Buy to Open 2 Contracts May 17th $150/$175 Call Vertical Spreads @ $8.30 Debit.

Total Risk: This trade has a max risk of $1,660 (2 Contracts x $830) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $830 to select the # contracts for your portfolio.

Trend Continuation Signal: This is a bullish trade on a stock that recently broke higher off a level of support.

1M/6M Trends: Bullish/Bullish

Relative Strength: 5/10

OptionsPlay Score: 112

Stop Loss: @ $4.15 Credit. (50% loss of premium paid)

View EL Trade

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Wednesday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

View EL Trade