In baseball, batters attempt to put the ball where the defenders aren’t positioned. In the equities market, it’s the opposite sentiment: they’re aiming for where the money will be. And that could be the driving force behind prescription glasses and contact lens provider Warby Parker (WRBY). It’s a cynical argument but WRBY stock represents a viable forward-looking narrative.
It’s an incredibly contrarian one as well. Currently, the Barchart Technical Opinion indicator rates WRBY stock as a 72% Strong Sell. The trend happens to be moving in the wrong direction. Last month, WRBY actually stood as a “40% Buy.” However, both current strength and direction indicators fell toward the negative side of the spectrum.
In fairness, WRBY stock carries a consensus view of Moderate Buy among Wall Street analysts. However, it’s interesting that two months ago, there were six experts who pegged shares as a Strong Buy, along with eight Hold ratings. Currently, there are only five experts who have issued Strong Buys (the number of holds remain the same).
Still, it’s the fundamentals that could potentially drive WRBY stock higher. According to the World Health Organization, the prevalence of myopia has been rising. Nearsightedness already affects one in three people ages 12 to 54 in the U.S. Looking at the situation worldwide, experts believe that 50% of the global population will become myopic by 2050.
With the framework set in place, many traders are apparently looking for WRBY stock to swing higher.
Call Volume Spikes for WRBY Stock Options
Following the close of the May 3 session, WRBY stock represented one of the highlights in Barchart’s screener for unusual stock options volume. This tool is an effective one for helping to decipher what the smart money may be thinking.
For Warby derivatives, total volume reached 3,792 contracts against an open interest reading of 30,526 contracts. Further, Friday’s volume was 584.48% higher than the trailing one-month average. Most notably, call volume soared to 3,780 contracts versus only 12 on the put side.
Now, what’s really encouraging for the optimists is the data from Barchart’s options flow screener. This interface exclusively focuses on big block transactions or those trades likely placed by institutional investors. Most notably, only one transaction with bearish sentiment was registered for WRBY on the Friday session. All others were either bullish or neutral.
On the technical front, WRBY stock has admittedly been disappointing. Since the beginning of the year, shares lost almost 15% of equity value. In the trailing year, it’s up nearly 13%. However, the undulations of WRBY make it difficult to predict. Nevertheless, shares overall have managed to print a rising baseline since July 2022.
One major event to watch is of course Warby Parker’s upcoming first-quarter earnings report, scheduled for release on May 9. Analysts are looking for earnings per share of 7 cents on revenue of $196.36 million. In the year-ago quarter, the company posted EPS of 6 cents on $171.97 million in sales.
Given the rising labor market during the quarter along with the necessity of the underlying business, I believe these are reasonable targets. Thus, it’s possible that options traders are positioning themselves for a potential earnings beat and an encouraging forward guidance.
Warby Parker is Also on a Discount
While WRBY stock is down this year, it’s worth pointing out that it could be a potential discount. Currently, shares trade for only 1.77X trailing-year revenue. In contrast, the medical devices sector runs an average price-to-sales multiple of 4.11X.
If that wasn’t enough, analysts believe that by the end of fiscal 2024, revenue should reach $755.13 million. If so, that would be up 12.7% from last year’s haul of $669.76 million. For fiscal 2025, experts are modeling for revenue of $851.01 million, up another 12.7% from projected 2024 sales.
Further, the most optimistic target for the current year lands at $757 million. So, it’s possible that – given the shares outstanding count of 99.1 million – that WRBY stock is deeply undervalued against forward sales (specifically 1.66X projected 2024 high-side revenue).
With the fundamentals cynically pointed in the right direction along with reasonable sales projections, Warby Parker makes for a compelling idea. For speculators, WRBY stock belongs on the watch list.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
