DDS: Upscale clothes, downscale nation

(I'll be travelling in East Asia through mid-March, so my filing schedule has become irregular as a result of timezone differences with New York.)

Dillard's Inc. (DDS) operates more than 300 clothing stores in the United States and has recently added a real-estate investment trust to its business model. It sells to an upscale market in a downscale nation trying to recover from the Great Recession

It is  competitive arena in which to play, and despite the challenges, Dillard's seems to be on a winning track, with steadily expanding earnings.

DDS had the most bullish chart of 15 stocks added Thursday to the Zacks top-buys list. RATE was the runner up. ATLKY and TIBX completed the final four.

The DDS chart shows that the market has a good opinion of the company's prospects. The rise from the recession low of $2.60 in November 2008 has carried the price up to a high of $62.09 on Wednesday.

The most recent leg up can be fairly called explosive. It began Feb. 17 at $49.00 and rose to the $62.09 high without a correction. Thursday, in fact, marked the first intra-day decline of that rise. It remained within Tuesday's trading range and has not yet reached a point where it can be called a reversal.

On a broader scale, DDS has broken past the post-recession high of $60.62, the second time it has challenged that level. Persistence below that prior high would be a signal to me that DDS is faltering significantly. A close-in failure signal -- this one is 2.6% below the high -- is a godsend for traders, as it allows the setting of a rational chart-based exit strategy.

DDS shows a return on equity of 22% -- growth stock territory. However, long-term debt stands at 44% of equity, higher than I consider optimal.

Institutions own nearly all of the stock in the company, and yet the stock is cheap. It takes only 48 cents worth of shares to control a dollar in sales.

Average volume is 1.4 million shares a day. The options selection is better than I would expect for that level of liquidity. There is a wide selection of strike prices set a dollar apart, with three- and four-figure open interest on strikes surrounding the at-the-money level.

Implied volatility is high, at 42%, yet not too far above the six-month low of 36%. The volatility suggests that prices will close between $54.58 and $69.60 a month from now, based on the $62.09 high.

The stocks goes ex-dividend on March 28 for a quarterly payout yielding 0.33% annualized.

Decision for my account: The U.S. markets are closed as I write this. I intend to buy call options during Friday's session.



Methodology

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.