Huge Short Position On Match Group Is Growing Ahead Of Earnings
Summary
- Match Group is set to report earnings after the closing bell on Tuesday.
- Analysts expect the company to see modest earnings growth but bigger revenue growth.
- The stock has gained almost 350% over the past two and a half years.
- Sentiment toward the stock is rather pessimistic.
- Looking for a portfolio of ideas like this one? Members of The Hedged Alpha Strategy get exclusive access to our model portfolio. Get started today »
Online dating service provider Match Group (NASDAQ:MTCH) is set to report earnings after the close on Tuesday. The company is expected to report earnings of $0.42 per share on revenue of $540.57 million. Those figures will be compared to EPS of $0.39 last year on revenue of $443.94 million. The EPS estimate would represent growth of 7.7% and the revenue estimate, if accurate, would represent growth of 21.8%.
The revenue growth is in line with what we have seen out of the company over the last few years. Match has averaged revenue growth of 23% per year over the last three years and revenue was up by 18% in the second quarter. Earnings growth has averaged 39% per year for the last three years, but the EPS was only up by 2% in the second quarter.
Analysts expect earnings to grow by 18% for 2019 as a whole while revenue is expected to grow by 19.2% for the year.
Match has incredibly strong management efficiency measurements with a return on equity of 138.8% and a profit margin of 31.1%.
The overall fundamental picture for Match Group is strong and the company garners high ratings from Investor’s Business Daily. The EPS rating is a 90, the SMR rating (Sales growth, profit margin, and return on equity) is an A, and the overall Composite Rating is a 90.
The Stock Is Up 346% Since Mid 2017
The price performance for Match Group matches the fundamentals. In mid-2017, the stock was trading in the $16.50 range and it closed at $73.73 on October 30. That is a gain of almost 350% in the last few years. The stock is up over 100% since the low last November.
The stock has pulled back over the last two and a half months, otherwise we would be talking about a gain in the last two and a half years of over 450% and over 160% since last November’s low.
There could be a benefit to the pullback as it has brought the stock down out of overbought territory and the weekly stochastic readings are close to oversold territory at this point. The indicators have only reached oversold territory twice in the last three years—once in early 2017 and last November. In both instances, the stock rallied sharply after the oversold readings.
A trend channel of sorts has formed in the last few years. The upper rail is more clearly defined with it being created by the highs in 2018 and the recent weekly closing highs. The lower rail runs parallel and touches the low from the fourth quarter of last year, but doesn’t have a second connecting point at this time. If this lower rail does end up acting as support, it is currently in the $65 range.
Sentiment Toward Match Group Is Far From Bullish
Looking at the sentiment indicators for Match Group, there are definitely signs of pessimism being aimed at the stock. Analysts are less bullish on the stock than they are most stocks. There are 20 analysts covering the stock currently and only 11 have “buy” ratings on Match. There are eight “hold” ratings and one “sell” rating. This puts the buy percentage at 55% and that is well below the average buy percentage.
The put/call ratio is currently at 0.756 and that is a little below average. A lower put/call ratio indicates more optimism. There are 47,296 puts open at this time and 62,589 calls open. The company’s average daily trading volume is 2.2 million shares and the open interest represents almost 11 million shares of stock, so it is statistically significant. The current reading on the put/call ratio is a little lower than it was on August 6 when the company last reported earnings. It was at 0.81 three months ago.
The one area showing the most pessimism is the short interest ratio. The reading is incredibly high at 13.4. The average short interest ratio tends to be around 3.0. When you consider how well Match has done as a company and how well the stock has performed in recent years, it seems crazy to see such a high short interest ratio.
The ratio has been climbing in the last few months and it has jumped due to an increase in the number of shares sold short and because the average daily trading volume has declined in recent months.
Should Match beat on its EPS and revenue estimates, the high short interest ratio could fuel a short covering rally.
My Overall Take On Match Group
There is a lot to like about Match Group. The fundamentals are strong with solid earnings and revenue growth, and the management efficiency ratings are really good. The stock’s price performance has been incredible over the last few years even after a pullback in the last few months. Combining strong fundamentals with great technical indications is a recipe that gets my attention every time. However, when you get those two things and then you also see bearish sentiment being displayed toward the stock - those are the kinds of scenarios I search for all the time.
The company has beaten EPS estimates in each of the last six quarters and I expect it to do so again this quarter. In the majority of cases, the stock has moved higher after the earnings reports with a few gaps higher on the day after reporting. There was one instance where the stock gapped lower after the earnings report and that was the report last November. Just remember, that was at a time when the entire market was rather tumultuous.
If you haven’t figured it out yet, I am bullish on Match Group for the long term. I am even comfortable enough to say you can enter into a position ahead of the earnings report because if there is a pullback after earnings, I don’t look for it to be a big decline.
I can see the stock moving past the $100 level within the next year and as long as it remains above its 52-week moving average I would feel comfortable holding it - as long as the fundamentals remain above average.
If you would like to learn more about protecting and growing your portfolio in all market environments, please consider joining The Hedged Alpha Strategy.
One new intermediate to long-term stock or ETF recommendation per week.
One or two option recommendations per month.
Bullish and bearish recommendations to help you weather different market conditions.
A weekly update with my views on the market, events to keep an eye on, and updates on active recommendations.
This article was written by
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.