Lovesac and Santa

Brit Ryle

Posted December 8, 2023

The first thing that caught my eye about this company was the name…

Lovesac (NASDAQ: LOVE).

How can you not be at least a little curious? It obviously takes some, um, guts to give your company a name like Lovesac. I figured a degree of confidence in the business model was at least likely, so I settled into my due diligence routine…

This was back in 2019. The company was a pretty new IPO, and mostly known for making beanbag-type furniture – hence the “sac” part of the name. But these weren’t the old vinyl beanbags that filled your house with tiny pieces of styrofoam when they inevitably broke…

The Lovesacs were heavy duty, nice looking, and a normal grown-up didn’t have to rollover onto their knees to get up out of the danged things. And they were pricey: $250-$300, as I recall…

The stock was around $25 or $30 when I decided to pass. Mostly because I felt Lovesac was a little too niche-y, hadn’t fully branched out with broader product offerings yet, and even though its online sales strategy was highly effective, it still had to build its brick and mortar presence and I worried the expense there might become a problem. 

The stock was a one-way ticket to losses throughout 2019, trading down to $4 by March 2020. 

You remember anything interesting happening to companies with effective online sales strategies starting in March 2020? 

Yep. Lovesac became one of the pandemic darlings and the stock LAUNCHED. 

Now, I already had my subscribers in a couple stocks that would become pandemic darlings. I had them buy Teledoc (NASDAQ: TDOC) in August 2019, and then Chewy in October. Those stocks ran +200% and +300% in 2020, and since I understand the difference between lucky and good, I didn’t really sweat missing Lovesac’s run to +$90(!) a share…

Sour grapes for sure, but I didn’t stop following Lovesac…

The company matured, now better known for its sectional sofas – which they call SACtional – made from recycled stuff than bean bags. Its brick and mortar expansion is working and it was very, very cheap…

And so I recommended it to Pro Trader Today readers back in September at $19.20 a share…

3rd quarter earnings reported earlier this really good – 14% revenue growth from last year – and the stock launched +10%. Currently around $25 a share, we’re looking pretty good. 

Even with the recent rally, the shares are fairly cheap. It sports a $390 million market cap on nearly $700 million in trailing revenue. The forward P/E of 10 represents nearly a double for earnings over the next year, hence the PEG ratio of .3.

Lovesac traded as high as $30 a share earlier this year, and I wouldn’t be surprised to see it return to those levels over the next month or so. 

Was That It for Santa?

So that November was one for the books – biggest November rally in 20 years or something. Plenty of investor/trader types have wondered if that was it for the year? Maybe Santa came a little early, while the weather was still nice?

We haven’t checked out the updated cart for the S&P 500 in a while, so let’s do that: 

First, let me say that yes, this is a chart from Yahoo! Finance. It’s free, easy to use and anybody that says you have to pay for fancy charts and indicators can stuff it. A good carpenter doesn’t blame his or her tools. 

I’ve drawn two horizontal red lines to indicate important support/resistance points. There’s also the 200-day moving average (black line) and the 50-day moving average (purple line). 

So that upper red line, it sits right at 4,550…the S&P 500 has used that line as support for the last 12 trading days. The 52-week high for the S&P 500 is 4,607, set back in July after Nvidia (NASDAQ: NVDA) reported second quarter earnings. 

The S&P 500 is consolidating that November rally just below new yearly highs. That’s a pretty strong showing, because it’s totally reasonable to think you’d get some profit-taking after that blowout November rally. And I’m sure investors and traders have taken money off the table. BUT – new money has replaced it, and so we have a sideways move for December…so far… 

Of course, despite the relative strength the S&P 500 has shown, there is downside risk. There always is…

But frankly, I don’t think it’s significant at this point. The 50-day moving average currently sits at 4,386, almost exactly 200 points (0.5%) below current levels. 

The circle I drew shows the breakaway gap that propelled the S&P 500 to where it currently trades. 

If the market were logical, the S&P 500 would fill that gap, test support at the 50-day moving average and be met with a horde of buyers who missed the November rally. 

But of course, the market doesn’t care about logic…

It’s been said that it’s the market job to frustrate as many investors/traders as possible. And a sideways move like we’ve gotten pretty much frustrates everyone – the bulls aren’t getting any upside and the bears aren’t getting any downside. It’s perfect!

Now, the all-time high for the S&P 500 was set on January 3, 2022, at 4,796. For context, January 2022 was the month when the CPI spiked to 7.5% and it became clear that the Fed’s “transitory” inflation was baloney and interest rates needed to go significantly higher…

Two years later, here we are – a couple hundred points from all-time highs on the S&P 500.

Yes, there remains downside risk into next week. But the next significant move for the S&P 500 is likely to be a run at those all-time highs. 

That’s it for me today, have a great weekend and I’ll talk to you on Monday…

Briton Ryle
Chief Investment Strategist
Pro Trader Today
brit.ryle@protradertoday.com
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