Buy Urban Outfitters (NSDQ: URBN) and January Calls

By Linda McDonough • November 8, 2018

Buy Urban Outfitters (NSDQ: URBN)

Target: $60

Buy Up To: $45

Options Trade: Buy to open the January 18, 2019 call on Urban Outfitters (NSDQ: URBN) with a strike price of $43 at $2.25 or lower. Symbol (URBN190118C43)

Rationale:

Urban Outfitters is enjoying strong double-digit comp sales. All three of its retail concepts, Urban Outfitters, Anthropologie and Free People are growing sales in the mid-teens. Investors were rattled recently when management noted that tougher comparisons for the next two quarters may result in high single-digit growth.

This is no reason to worry. I look at a two-year stack when analyzing comps. This removes the noise that occurs when a company is lapping against a particularly difficult or easy comparison in the prior year. On this basis, Urban’s sales are growing solidly in the low double-digit range.

Importantly, this level of growth matched with fewer markdowns results in much-improved profit margins. These margins grew from the low-30’s to mid-30’s and could expand more with robust sales.

It may sound silly, but Urban should benefit from the migration away from the skinny jean silhouette to a wide-legged pant. Customers at Anthropologie are responding quite positively to these new looks, scooping up clothing at full price. The positive macro picture of full employment, a resolution to the mid-term elections and strong wages should deliver a happy holiday season to most retailers.

Urban looks cheap and estimates look too low to me. The company reports its October quarter on November 19 after the close.

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Joanne Zhang

11/08/18 ‐ 9:37am ET November 8, 2018 at 9:37am ET

URBN filled @ $2.25 ND

Thank you

Phil L.

11/08/18 ‐ 9:37am ET November 8, 2018 at 9:37am ET

In at 2.25

Thank you Linda

Linda McDonough

11/08/18 ‐ 9:57am ET November 8, 2018 at 9:57am ET

Thank you both for the fill updates. This is very helpful. Can you also tell me if you received the text alert and if so, about what time? I’d like to see if me posting the trade alerts before the market opens ensures more timely delivery.
Thanks!
Linda

Maria R

11/08/18 ‐ 10:48am ET November 8, 2018 at 10:48am ET

Yes, got the text message @ 5:45 am PT
Thanks

Joanne Zhang

11/08/18 ‐ 11:32pm ET November 8, 2018 at 11:32pm ET

Hi Linda, I think I received the text alert at 6:45AM MST

MarkS

11/08/18 ‐ 10:14am ET November 8, 2018 at 10:14am ET

bought URBN @ $41.
text alert received 7:41 ct; email at 7:01 ct.

Matt H

11/08/18 ‐ 12:44pm ET November 8, 2018 at 12:44pm ET

Call filled on Fidelity at recommended price. It’s already up

JoeJB

11/08/18 ‐ 3:56pm ET November 8, 2018 at 3:56pm ET

Filled at $2.25 around 9:45 EST

Ted

11/09/18 ‐ 1:53pm ET November 9, 2018 at 1:53pm ET

URBN – bought Jan $3 call @ $2.17

Ted

11/09/18 ‐ 5:55pm ET November 9, 2018 at 5:55pm ET

correction – $43 call

Abhi A

11/09/18 ‐ 3:26pm ET November 9, 2018 at 3:26pm ET

In at 2.10.

Stanley

11/10/18 ‐ 10:59am ET November 10, 2018 at 10:59am ET

URBN filled 2.20 @ Fidelity

ETKTRIDE

11/12/18 ‐ 6:51pm ET November 12, 2018 at 6:51pm ET

URBN – filled @ $2.00 ND (IB)

Jeffrey J

11/13/18 ‐ 10:01am ET November 13, 2018 at 10:01am ET

URBN call option filled @ $1.75 today, at TradeStation.

Prasanna Kumar Y R

11/17/18 ‐ 12:25pm ET November 17, 2018 at 12:25pm ET

Is URBN option still a good buy since the stock went down to $37 lately?

Linda McDonough

11/17/18 ‐ 3:38pm ET November 17, 2018 at 3:38pm ET

Prasanna,
Yes, I think it’s quite a bargain here. The company reports earnings this Monday, November 19, after the close. My bet is that they report a strong number with solid guidance. I am surprised by the negative reaction to Walmart’s numbers so this is not a bet without risk (if there is such a bet, please help me find it), but I think the risk/reward is favorable.
It’s always a good idea to check in on options recommendations if more than a few days have passed since the original idea.
Best,
Linda

Prasanna Kumar Y R

11/19/18 ‐ 10:58pm ET November 19, 2018 at 10:58pm ET

Thanks Linda,
Got JAN-19 $34.00 CALL at $4.20

Linda McDonough

11/20/18 ‐ 10:36am ET November 20, 2018 at 10:36am ET

Prasanna,
You transposed the strike price of the calls. I recommended the $43 ones but you bought the $34 ones, which are in the money. I will not be making a recommendation on that specific series of calls but the trend in price for all the calls should be correlated.
Best,
Linda

Prasanna Kumar Y R

11/21/18 ‐ 1:02pm ET November 21, 2018 at 1:02pm ET

Thanks, I just bought it consciously since the stock went low.

Daniel Long

11/20/18 ‐ 11:01am ET November 20, 2018 at 11:01am ET

URBN
BTO Jan 18 43 C at 0.70 this AM (Nov 20).
Missed the alert last week because of travel. Noticed price below recommended and bought.
Thanks.
DL

Prasanna Kumar Y R

11/21/18 ‐ 1:01pm ET November 21, 2018 at 1:01pm ET

Thanks, I just bought it consciously since the stock went low.

Liranzo Sanchez

11/23/18 ‐ 10:22am ET November 23, 2018 at 10:22am ET

Linda, I’m down over 79% on this
option trade, should I still hold or take my lose?

Linda McDonough

11/26/18 ‐ 10:44am ET November 26, 2018 at 10:44am ET

Liranzo,
See my comments in the weekly update that I just posted. I am sticking with the URBN calls for the moment but considering selling and rolling into a February or March series.
Best,
Linda

Prasanna Kumar Y R

12/16/18 ‐ 5:23pm ET December 16, 2018 at 5:23pm ET

URBN calls are deep in the red, still bullish?..

Linda McDonough

12/18/18 ‐ 8:36am ET December 18, 2018 at 8:36am ET

Prasanna,
Yes, I am still bullish on the fundamentals. The stock (with most of the market), is obviously not acting as predicted. Please see my more detailed comments on URBN in the weekly update published yesterday.
Best,
Linda

Stanley Golovac

12/18/18 ‐ 11:04am ET December 18, 2018 at 11:04am ET

What should I set the BUY at????

Linda McDonough

12/18/18 ‐ 4:18pm ET December 18, 2018 at 4:18pm ET

Stanley,
It is always good to check in with me on options trades as each trade is really only “live” for a week or so. Once the stock moves and time passes, that particular option series might not be the best bet. I am not currently suggesting buying the URBN calls. Despite fundamental news that is strong, the stock is going lower. The retail index (RTH) is down 10% since the start of December.
As an editor, I am prohibited from giving specific advice to subscribers. I often suggest dollar cost averaging when entering and exiting positions. Spreading out your entry and exit prices helps to smooth some of the volatility in the market. I do not have a hard and fast rule for selling a stock. I attempt to remain patient but when a stock is down 20% or more (URBN is down 17% since inclusion) I will sometimes place a stop loss price on that position.
Best,
Linda

Stanley Golovac

12/18/18 ‐ 11:03am ET December 18, 2018 at 11:03am ET

BUY more URBN????? I’m DOWN 50K already

Stanley Golovac

12/18/18 ‐ 1:18pm ET December 18, 2018 at 1:18pm ET

Any Advice Linda?

Stanley Golovac

12/18/18 ‐ 6:05pm ET December 18, 2018 at 6:05pm ET

Linda Thx for all the info. So, the Q still stands BUY more options NOW or NO??

Linda McDonough

12/19/18 ‐ 9:19am ET December 19, 2018 at 9:19am ET

No. I am looking at some series at lower price points and further out in the future. I’m a little gun shy with the calls as the market just seems to swipe away at them so quickly. I will send out an alert when I have it all mapped out.

Prasanna Kumar Y R

01/05/19 ‐ 12:21am ET January 5, 2019 at 12:21am ET

The stock is behaving as if it is going to get acquired by some company!

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