Credo Technology stock: Insider selling meets options market jitters before earnings

Credo Technology Group stock has slumped and moved into a bear market after falling by over 24% from its highest point this year. CRDO dropped to $232, and this price action will be put to the test as the company publishes its financial results on Tuesday. 

Credo Technology Group stock in focus as insiders sell ahead of earnings

CRDO stock has erased some of the gains it made earlier this year, mirroring the performance of other companies in the AI industry. This retreat has affected even the best-known names like Micron and Nvidia, which have published strong financial results. 

The retreat has also coincided with the ongoing insider selling. Barchart data shows that insiders have sold 589,284 shares in the last three months, bringing the 12-month selling to 2.88 million. Some of the top sellers are Yat Tung, the COO, and Chi Fung, the CTO. Insider selling is usually a risky thing for a stock since these officials have more data than the average investor.

The options market suggest that the stock will see heightened volatility after its earnings report. Data shows that the implied volatility has soared to 122%, higher than the historical volatility of 96%. Its put/call ratio remains below 1, a sign that there are more calls than puts, which is bullish. Most of the call options are at $240 and $250, while the puts are at $235. 

Analysts are optimistic about the company’s growth, with the average estimate of its revenue being $471 million, up by 111% from a year earlier. This growth is happening because of the rising demand for its active electrical cables, optical DSPs, optical transceivers, and PCIe Retimers. Most of its competitors, like Lumentum, have all published strong numbers. 

Credo Technology’s profits are also expected to keep soaring, with the earnings-per-share (EPS) moving from 52 cents per share to $1.17. For the year, the annual revenue and EPS are expected to grow to $2.27 billion (84% YoY gain) and $6.27, respectively. Odds are that Credo’s earnings will be higher than expected.

Analysts are largely bullish on the CRDO stock. For example, TD Cowen’s Sean O’Loughlin hiked his target from $260 to $300, while Susquehanna, Barclays, Bank of America, and Evercore moved their targets to $250, $300, $340, and $325, respectively.

CRDO stock technical analysis

Credo Technology stock chart | Source: TradingView

The daily chart shows that the Credo Technology Group stock peaked at $308 on June 22nd and then pulled back to $175 as the AI rally loses steam. It then attempted to rebound, eventually peaking at $285. 

Credo is hovering near the lower side of the Andrews pitchfork tool. Also, it remains above the 100-day Exponential Moving Average (EMA). It has also moved above the strong, pivot, reverse level of the Murrey Math lines tool.

Therefore, the stock will likely bounce back, possibly to $250 after its earnings report. On the flip side, a drop to the key support of $176 is possible.