This Stock Is All Dressed Up With Someplace to Go

I'm Still in Love with Vera. Vera Bradley that is. The fashion designer, manufacturer and retailer of handbags, backpacks, luggage, home and accessories first attracted my attention after the COVID-panic of 2020 drove its shares way, way down. VRA had a tough year in 2020 due to government-imposed store closures. With physical stores shut down, VRA's first quarter of fiscal 2020 showed a 65 cent loss. That created a huge buying opportunity, plus a chance to sell naked puts at incredible premiums. Earnings came back almost immediately once shops reopened. The final three quarters of fiscal 2020 (ended Jan. 31, 2021) were highly profitable. Second-quarter results are due on Wednesday; I'm expecting very good numbers, perhaps by a wide margin above analysts' projections of 32 cents or 33 cents per share. VRA posted 42 cents per share in its Jan. 31, 2020 quarter, just ahead of the virus pandemic. VRA exhibits major upside momentum since bottoming out in April of 2020. Amazingly, at its Aug. 27 quote of $11.85, the stock sold for just 10.7-times its fiscal 2022 estimate. That compares with a historical average multiple of about 22-times. A simple reversion toward the mean valuation could easily send VRA back up toward $20 by the Jan. 31, 2023. That goal is not far-fetched. Vera Bradley topped out from $20.55 to $30 during each of the four years 2013 through 2016. EPS in three of those years was less than is now expected for 2022. Independent research house Morningstar does not provide analyst coverage on VRA. Nor does it make year-ahead price projections. It does, however, call its computer-generated, present-day fair value as $13.41. Expected future EPS growth will add dramatically to that number. Quantitatively oriented FastGraphs sees good things down the road for VRA. It calls for a fair value of $16.82 by Jan. 31, 2022 and see $19.27 or so one year later. Traders/investors who like this idea could simply get long VRA shares. They might jump higher quickly if this week's EPS report comes out strong. Option-minded people could consider buying VRA calls or shorting its puts out to the Feb. 18, 2022 expiration day. Actual pricing, with VRA at $11.80, is shown below. Selling $10, $12.50 or $15 strike price puts provides decent margins of safety vs. the trade inception price while also bringing in reasonable immediate income. If VRA is headed toward $16 - $20, even the most aggressive of those puts are likely to end up expiring worthless. That is the best-case scenario for option sellers. Can you really make good money shorting options? Pick a rising stock and you bet you can. Here are actual 2020 - 2021 year-to-date results from my two main put writing accounts, just on Vera Bradley. In a tad less than 20-months I netted $42,658. Only $1,890 of that came from expired covered call options. Of the eight naked put sales, seven expired worthless. The other put position was closed-out for a $5,817 gain. I currently have lots of short puts still outstanding on VRA for Nov. 19 of this year and Feb. 18 of 2022 at various strike prices. Every one of them shows paper profits with VRA at its present price. By the time you are reading this you'll have just one trading day to take positions in VRA before the next earnings announcement. I can offer no guarantees of what they'll deliver or how the market will react. That said, I'm hoping to see both great EPS and a nice pop.

This Stock Is All Dressed Up With Someplace to Go

Let's look at Vera Bradley as it's set to post earnings this week.

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