While a large contingency of the investment public is fascinated by the it stock of the day, I usually find myself trying to figure out the potential for a resurrection of prior darlings. Of late in the consumer space, once loved high valuation/growth stocks like Lululemmon (LULU) and Whole Foods (WFM) have seen a renaissance, up 70% and 40% respectively from last year’s lows. The stocks had become washed out as they suffered from a combination of overzealous expectations, rich valuation and poor execution.
Another such consumer stock that had a big following and rich valuation but seemed to die in the eyes of investors in 2014 was Dunkin Brands (DNKN), which ended the year with a thud in Mid December lowering guidance due to weak consumer demand. DNKN is surging today more than 5% on positive comments made by the CEO on CNBC this morning:
Importantly, the stock is filling in the gap from mid December:
And investors are snapping up calls. As of noon, total options volume is 10x average daily, with 95% of the volume in calls. The largest block was a buy of 7,000 June 50 calls for 1.50 to open when the stock was $45.21, while the most active strike is the March 47.50 calls, with a total of 13,000 trading with the largest block of that strike a buy of 3800 for 1.25 when the stock was $45.13.
This could be an interesting play from the long side. I wouldn’t chase it here but if it came back in towards $44/45 it could make sense to position into the Feb 5th earnings event.