Scholastic Sees Bullish Options Implications Despite Rough Year

Representing one of the cornerstones of the global educational material ecosystem, few doubt the relevancy of  Scholastic Corporation (US:SCHL).

Unfortunately, fundamental pertinence alone doesn’t guarantee success in the capital markets, especially at this juncture. Following a choppy recovery from the COVID-19-related lows of 2020, SCHL stock has not had an auspicious start to the new year. Still, rumblings in the derivatives market might imply anticipation of a resurgence.

So far this year, SCHL stock fell below parity to the tune of 5.61%. Up until the final few days of March, Scholastic managed to poke its head above water. Unfortunately, disappointing results for its fiscal third quarter cratered sentiment.

Loss Expands

According to Scholastic’s press release, the education specialist posted revenue of $324.9 million. Unfortunately, this tally slipped 5.69% against the year-ago quarter’s result of $344.5 million. Also, the net loss came out to $19.3 million, unfavorably expanding from the net loss of $15.1 million in fiscal Q3 2022.

On a per-share basis, Scholastic incurred a loss of 57 cents. One year ago, the company posted a loss of 44 cents per share.

At the time of the financial disclosure, Peter Warwick, president and CEO stated, in part, “Scholastic navigated short-term headwinds in domestic and international markets, which contributed to modest sales declines and higher losses in our seasonally small third quarter. The Company used its strong balance sheet to return over $53 million to shareholders through our dividend and expanded open-market share repurchases, while continuing to invest in strategic growth opportunities.”

Unfortunately, investors of SCHL stock reacted poorly to guidance in the current quarter. “With tougher market conditions expected to continue into Q4, we have updated our fiscal 2023 outlook. We have quickly adjusted short-term spending, in line with our revised top-line outlook, and focused on initiatives to improve margins.”

Scholastic guided for a fiscal 2023 adjusted EBITDA of $175 million to $185 million, compared with a previous expectation of $195 million to $205 million, according to Marketwatch. Full-year revenue is expected to grow about 4%, compared with a previous range of 8% to 10%.

Critical Needs

To be fair, management emphasized that “[c]ritically, the long-term outlook for the importance of children’s books and of solutions to raise literacy rates remains as strong as ever, as does our optimism in Scholastic’s ability to grow and uniquely meet these critical needs.”

Notably, options traders may have picked up on the optimism. Following the close of the May 9 session, SCHL stock represented a key highlight for Fintel’s screener for unusual stock options volume. Specifically, call volume hit 502 contracts against an open interest reading of 103. These stats compared to put volume of only one contract against open interest of 22.

This test is generally recognized as a reliable way to discover bullish trading opportunities.

On average, call volume for SCHL stock reaches 6 contracts while put volume reaches one contract.

In addition, options sentiment remains very optimistic, with Scholastic’s put/call ratio sitting at 0.21. Since calls (the denominator in this case) represent generally long-side bets, a ratio less than one indicates bullish sentiment. With society gradually normalizing, market gamblers may consider further investigation into SCHL’s upside potential.

This article originally appeared on Fintel

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