Yelp Inc (NYSE:YELP) shares gapped lower in early February, as traders reacted to a disappointing sales forecast. However, the stock last week took out its pre-earnings close — a pattern that’s led to short-term gains this year. In addition, YELP muscled north of a trendline that connected lower highs since November, and retook the $45 level — triple its initial public offering (IPO) price and the site of notable call open interest. However, despite YELP outperforming the broader stock market on both a year-to-date and year-over-year basis, skepticism surrounds the online review site — suggesting now is an opportune time to bet on more upside for the stock.
Short interest grew more than 11% during the most recent reporting period, yet YELP powered higher. These bearish bets now account for 9.3% of the equity’s total available float. As the shares extend their upside momentum, short covering could translate into an added tailwind.
Despite gaining more than 56% in just the past nine months, YELP remains underappreciated by analysts, too. In fact, nearly half of the brokerage firms following the stock maintain tepid “hold” or worse opinions. Likewise, the average 12-month price target on the equity sits at $46.26 — a stone’s throw from the stock’s current price. A round of analyst upgrades and price-target hikes could also lure more buyers to the table.
Now is a good time to speculate on YELP with short-term options. The stock has a Schaeffer’s Volatility Index (SVI) of 34%, which sits in just the 8th annual percentile, hinting at lower-than-usual volatility expectations priced into near-term contracts. Lastly, our recommended call has a leverage ratio of 4.3, and will hit its profit target on a 24.4% rise in the underlying shares.
Subscribers to Schaeffer’s Weekend Trader Series options recommendation service received this YELP commentary on Sunday night, along with a detailed options trade recommendation — including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.