My scans of the stock charts this week are showing a nice short sell on a famous tennis shoe retailer. It sold off about 5% on Friday after the unemployment rate hit 5.5%, oil spiked back up to $11.00 to end the day at about $138 a barrel, and an analyst at research firm Sterne Agee posted a hold rating on this stock giving it a $12.00 price target.
Short Sell: Foot Locker (NYSE:FL)
First, my analysis to sell or buy is mostly from the technical perspective as I'm looking for low risk high reward trade setups of at least 3:1 reward risk. Foot Locker is showing about a 3.5:1 reward risk ratio. Now reward risk ratios are subjective also, and my analysis of this could be wrong. Simply put, this business of investing and trading is more an art than a science. . . predicting the future I mean. I do look at the forward fundamentals of the general market, and the companies in considering my buy and sell positions. Since I use stop-loss, and stick to my stop-loss rules, whether I'm right or wrong, I've got a long term winning system. So when the market proves me wrong, just like the market proves anyone wrong, I take the small loss and move on to the next investing and trading idea. I hope you are using stop-loss too. Live to invest and trade another day right? Right!
FL Short Sell Trade Setup
- Sell at current price of $13.74 or higher up to 15.08.
- Stop-Loss 8% or any amount you can handle losing.
- Take Profit Areas.
- Short Term $12.40
5/22/08 saw a low of $11.84, and 5/23/08 saw a gap up opening at $12.81 on bigger than normal volume with a close at $13.54. I’m betting these fresh longs will be tested along with a price of $12 or so anytime now.
- Intermediate Term $11.06 to $9.72
- Long Term $9.01 to $8.20
- Longer Term $6.64 to $7.30 if things get and continue to stay ugly for Foot Locker
Depending upon which ratings service you’re using, Foot Locker has a PE of 42 to 59. With the economy in trouble, would you be buying $100.00 plus tennis shoes or paying off overdue bills?
The longer term scenario could play out, if Foot Locker doesn't unload its overloaded inventory, close some stores, and their earnings next quarter come in lower. I've heard comments of a Foot Locker stock price lower than 6 dollars a share if they don't get it together soon enough. What are you buying this year? Tennis shoes or technology gadgets? Tennis shoes look cool, and feel good, but many tech gadgets can help you be more productive. I would say at least this year, vanity will take second seat to tech. My recent long position in AMD is proving that to be right so far.
Foot Locker Competition
Competitors to Foot Locker are Finish Line (NASDAQ:FINL) and Wal-Mart (NYSE:WMT). I'm betting Wal-Mart fairs the best of those stores selling tennis shoes with their discount pricing and exponential market reach over Foot Locker.
Foot Locker Company Profile
Foot Locker, Inc. is a global retailer of athletic footwear and apparel, operated 3,785 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand as of February 2, 2008. The Company, through its subsidiaries, operates in two segments: Athletic Stores and Direct-to-Customers. The Athletic Stores segment is an athletic footwear and apparel retailer, whose formats include Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports and Footaction. The Direct-to-Customers segment reflects Footlocker.com, Inc., which sells, through its affiliates, including Eastbay, Inc., to customers through catalogs and Internet Websites. The Foot Locker brand is the Company’s principal brand.
Disclosure: short FL