NEW BEARISH Plays
Lannett Co. - LCI - close: 47.95 change: -1.92
Stop Loss: 51.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 31, 2015
Time Frame: Exit 6 to 8 weeks (ahead of October option expiration)
Average Daily Volume = 858 thousand
New Positions: Yes, see below
LCI has seen tremendous earnings and revenue growth over the last few years but it looks like their growth rate might be slowing down.
LCI is in the healthcare sector. According to the company,
"Founded in 1942, Lannett develops, manufactures and distributes generic prescription pharmaceutical products in tablet, capsule and oral liquid forms to customers throughout the United States. Lannett markets its products primarily to drug wholesalers, retail drug chains, distributors, and government agencies."
Looking at LCI's last four quarterly reports the company has beaten Wall Street's earnings estimates every time. The trend in revenue growth could be a warning. Their Q1 revenues (announced Nov. 3rd, 2014) were up +103.8%.
Q2 revenues (Feb. 4th) rose +69.7%. Q3 revenues were only up +24.3%.
LCI's most recent earnings report was August 25th. The company delivered a profit of $0.91 per share. That was four cents above estimates and a +42% improvement from a year ago. Revenues grew +23% to $99.28 million, also above expectations. The market's problem with the results seems to be LCI's 2016 guidance, which was a little soft.
LCI's full-year 2015 earnings growth was an impressive +162%. Unfortunately the stock market is always looking forward, not backward. It appears that investors are growing cautious.
Technically the stock broke down back in May following its Q3 earnings report. Then during the June-through-early August time frame shares of LCI produced a bearish head-and-shoulders pattern. That pattern broke when LCI fell below short-term support at $55.00 and long-term technical support at the 200-dma.
Now it looks like the oversold bounce from last week's low is failing. Shares underperformed the market with a -3.8% decline today. LCI has also broken below a long-term trend line of support. I suspect that LCI could fall toward round-number support near $40.00.
Tonight we are suggesting a trigger to launch bearish positions at $47.25. However, I want to caution readers to limit their risk and use small positions. The most recent data listed short interest at 26% of the relatively small 26.74 million share float. That much short interest raises our risk of a short squeeze and could make LCI more volatile.
Trigger @ $47.25
- Suggested Positions -
Short LCI stock @ $47.25
- (or for more adventurous traders, try this option) -
Buy the OCT $45 PUT (LCI151016P45) current ask $2.55
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike