NEW DIRECTIONAL CALL PLAYS
Red Robin Gourmet Burgers Inc. - RRGB - close: 76.38 change: +1.40
Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 276 thousand
Entry on December -- at $---.--
Listed on December 22, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
The price of gasoline in the United States has fallen for 89 days in a row as of today. That's the longest streak on record. The current national average is down to $2.376 a gallon. That's more than $1.00 off the recent peak. Who stands to benefit from this major correction in fuel prices? Restaurants.
Americans love to dine out. Paying less at the pump means a lot more disposable income to blow on casual dining. One firm that should benefit is RRGB. The company press describes RRGB as "Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc. There are more than 500 Red Robin restaurants across the United States and Canada, including Red Robin Burger WorksÂ® locations and those operating under franchise agreements."
A couple of weeks ago Wunderlich Securities commented on the restaurant industry. They believe that industry sales could see some of their strongest monthly gains in years and restaurants are poised to do well in 2015. The combination of strong consumer confidence, improving labor trends, and falling gasoline prices is a great recipe for stronger sales at restaurants. The major restaurant chains have been reporting positive same-store sales for the fifth month in a row. That hasn't happened since early 2012.
Technically shares of RRGB have been showing some relative strength the last few days. The stock spent the first half of December consolidating sideways above support near $70.00. Now it's breaking out to new multi-month highs. If this rally continues RRGB could see some short covering. The most recent data listed short interest at 10% of the very small 13.8 million share float. The Point & Figure chart is very bullish and forecasting a long-term price target at $115.00.
Tonight we are suggesting a trigger to buy calls at $76.65. I do see potential resistance at $80.00 (round-number resistance) but we suspect RRGB could run for a while.
Trigger @ $76.65
- Suggested Positions -
Buy the MAR $80 CALL (RRGB150320C80) current ask $4.10
Option Format: symbol-year-month-day-call-strike