“Pump up the volume” isn’t just a catchy house song from the late 80’s.
It’s also what gets the party started when it comes to stock rallies.
To many traders, volume—the number of shares that exchange hands within a certain time period—is the most important indicator. That’s because a pick-up in the level of trading activity can presage a significant uptrend or downtrend.
A volume spike can occur for any number of reasons. Often there is a major company announcement or industry-specific news that generates high interest in a stock. Other times, it can stem from a large institutional or insider transaction.
Depending on the investor’s time horizon, there are several ways to identify which stocks are experiencing volume surges. One commonly used metric is ten-day average volume as a percentage of 90-day average volume. High values point to stocks with unusually high trading activity.
When a high-volume name is also well-liked by sell-side research analysts, it can signal to the market that an underlying catalyst is taking shape. Here’s why the volume is being turned up on these three companies.
Is Lululemon Athletica Stock a Buy?
The 90-day average daily volume on Lululemon Athletica inc. (NASDAQ: LULU) is roughly 1.48 million shares. Over the last ten days the average volume has jumped to 2.29 million shares. The resulting 1.5 ratio can be interpreted as so—recent trading activity is 1.5x, or 50%, greater than normal.
The pickup is mainly the result of the apparel maker’s fourth-quarter earnings report of March 30th. A 31% increase in profits confirmed the strength of the brand and lululemon’s booming direct-to-consumer business. This caused the stock to gap up in more than five-times the 90-day average volume.
The last time lululemon saw this much trading activity in a single day was September 9th. It reported a blowout quarterly report and said it was on pace to reach its 2023 revenue target much sooner than anticipated. Two months later the stock climbed to a record high near $500.
Lululemon may have $500 in its sights again after last week’s volume spike of about 8 million shares matched what we saw in September 2021. Wall Street is again playing catch up raising EPS forecasts and price targets. Twelve of 16 firms are calling the stock a buy including Cowen & Co. which has a Street-high $507 target.
Is the Bottom in for Shopify Stock?
We haven’t seen this kind of volume in Shopify Inc. (NYSE: SHOP) since the early days of the pandemic. That’s when the stock soared as businesses big and small scrambled to build their e-commerce capabilities and adjust to the unusual economic environment.
This time around the technology platform provider for merchants finds itself back at the bottom of the hill some 60% below its November 2021 peak. Daily volume has consistently been above average of late which suggests the downtrend may finally be over. Shopify shares have recovered nearly $200 from last month’s low and some say the rally has just begun.
Wells Fargo is among those that think Shopify remains attractive despite its days of hyper growth likely being over. This week the firm initiated coverage of the $700 stock with an Overweight rating and $834 target. Three other firms have offered bullish sentiment—but with far more bullish targets in the $1,000 to $1,500 range.
No one on the Street is calling Shopify a ‘sell’ and even the most cautious price targets suggest $100 upside. Perhaps the biggest bull, however, is Barton Investment Management. The Pennsylvania-based hedge fund exited the year with Shopify as a 27% position in its Focused Growth fund.
Why is Hasbro Stock So Volatile Lately?
The rise in volume on Hasbro, Inc. (NASDAQ: HAS) has coincided with a downtrend that has persisted since the stock jumped to $105 last month. The iconic toy maker is currently trading around $85 per share, a price that most on the Street find attractive.
This week Jeffries gave Hasbro its sixth buy rating of the year alongside a $115 target. This came after BMO Capital gave the stock a neutral rating and target that matches its current price.
The bullish case on Hasbro points to the strength in its gaming segment which includes popular brands such as Magic: The Gathering, Nerf, and Transformers. The bears, on the other hand, remain concerned about lingering pandemic headwinds like higher materials and freight costs.
Hasbro’s 1.4x 10-day-to-90-day volume ratio reflects a stock that has become polarized amid a heated proxy fight with investor Alta Fox Capital Management. It’s difficult to say how that will end, but what’s more certain is the success of Hasbro’s budding gaming franchise.
As the company continues to push into the original entertainment content space, growth has followed. The integration of Entertainment One (of Peppa Pig fame) was evident in Hasbro's 40% bottom line growth last year. And with the forward P/E down to 17x and volume trending higher, Hasbro shareholders can expect more fun and games ahead.
Before you consider Hasbro, you'll want to hear this.
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