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Option Traders Look to Buy this Stock at a Deeper Discount Following Earnings Miss

Posted: 08 May 2020 04:30 AM PDT

On Tuesday after the market close, Pinterest, Inc (PINS) announced their earnings. The EPS for the quarter of a $0.10 loss was wider than the average analyst estimate of an $0.08 loss. The company had reported a $0.32 loss in the same quarter a year ago and the narrower loss was a significant improvement. The company also announced revenue of $272 million, which is a 26.7% increase from the prior year. They reported an increase of 133% in international revenue.

While the revenues and earnings increased year-over-year, the company did see a rise in expenses in virtually every segment as the company has continued to grow. Because of the climate, the company did not issue any guidance for the year and the stock tumbled nearly 15% on Wednesday.

Option traders appeared unphased by the sharp decline and began jumping in the bullish waters on Thursday. The put volume was about 52% higher than average with 71% of the volume being filled between the market. However, there was over 21,000 in volume on the 19 JUN 20 $14 strike price against an open interest of 130. The activity was largely put selling for around $0.30. There was also a lot of call activity, especially on the 15 MAY 20 $18.50 call that traded over 18,000 contracts against an open interest of 845.

Action to Take: The near-term target is to retest the prior high near $22.

Option traders that are wanting to buy the stock at a deeper discount from its current price may want to consider selling the 19 JUN 20 $17 put for around $0.90 or more. This gives a ROR of nearly 6% over the next 42 days, and the ability to buy PINS at a breakeven price of $16.10. Close the trade early for $0.25 or less.

After All of the Insider Selling Since Their Earnings Report, this Company should Change Its name to F14

Posted: 08 May 2020 04:30 AM PDT

F5 Networks (FFIV) beat analyst estimates on the top and bottom line as it reported earnings on April 27 after the market closed. Their earnings of $2.23 a share was significantly higher than analyst estimates of $1.99. On top of the EPS beat, the number came in higher than the company had forecast. Revenues of $583.4 was 7% higher than last year and higher than the estimate of $566 million. The company rewarded the company with a 7% advance.

With apparently such a good report, what's there to complain about? Well, the fact that a significant percentage of revenue growth was purchased as they completed acquisitions of NGINX and Shape in May and January, respectively. That may have become clearer throughout the trading day as the price fell back from its intraday high of $153.56 to close at $140.86.

This understanding is likely clear to insiders who have sold shares of the company since the report. Since April 28, 14 different insiders sold shares of stock totaling 24,167 shares and $3.32 million in value. Because of the number of transactions, you could call this the most sold company since April 28.

The list of sellers included many executive vice presidents, a senior vice president, their President and CEO, and directors. The biggest seller was Francois Locoh-Donou, who is the president, CEO and director. He sold 5,040 shares, which represented over 8% of his holdings.

Action to Take: FFIV is a short opportunity at $153 or a break below $132, with a target of $122.

4 Microcap stocks to Own in a Difficult Market

Posted: 08 May 2020 04:30 AM PDT

What is a microcap stock? Technically, it is a company that has a market capitalization that is between $50 million and $300 million. A company's market is determined by taking the stock price times the number of shares outstanding.

The value of looking at companies of various market capitalization is that it provides a degree of diversification. During a period like we saw in late February and early March, very few companies escaped the selling. However, if there is another leg lower in the market, it may not have the same breadth of selling.

As company's are having their debt downgraded left and right, considerations for how leveraged a company is and how much cash they have is important. One measure of leverage is the debt-to-equity. This ratio takes the company's total liabilities divided by the equity of the company. The equity is determined by taking the assets minus the liabilities.

As you consider the cash a company has, there are a couple measures to consider. The first is the actual amount of cash the company has in relation to their expenses such as: selling and general administrative expenses, interest expenses and capital expenditures. Another measure is how much the company has in cash relative to their debt. This can be viewed by considering the cash-to-debt ratio.

The following list of companies are microcap names that embody a company that has low leverage, profitability, and reasonable cash levels.

Microcap #1: BioLife Solutions, Inc (BLFS)

BLFS is engaged in the developing, manufacturing and marketing a portfolio of biopreservation tools and services for cells, tissues and organs, including clinical grade cell and tissue hypothermic storage and cryopreservation freeze media and a related cloud hosted biologistics cold chain management application for shippers.

The company currently has no debt as of their last report, but they do have their 1Q 2020 report coming up on May 14, 2020. The company currently has $6.4 million in cash and cash equivalents and has a 3-year revenue growth rate of 24.1%. Using trailing twelve-month (TTM) EPS, the company is generating 18.83% return on equity. Their current cash levels amount to one quarter of SG&A.

BLFS recently broke through resistance and has a target of $18 in the near-term.

Microcap #2: Camtek Ltd. (CAMT)

CAMT is a semiconductor stock that provides inspection and metrology solutions for the semiconductor industry. It provides solutions based on its advanced image processing, motion control, material handling, algorithms, and optics related technologies.

CAMT currently has a debt-to-equity of 0.01 and a cash-to-debt ratio of 108.41. They also have their 1Q 2020 report coming up on May 11, 2020. The company currently has $38 million in cash and cash equivalents and has a 3-year revenue growth rate of 15.9%. In the TTM, the company generated 18.05% return on equity. Their current cash level amount to nearly 1.5 quarters of SG&A.

CAMT recently bounced off of support and has a near-term target of $13.25.

Microcap #3: eGain Corporation (EGAN)

EGAN provides cloud-based and on-site customer engagement software solutions. The Company optimizes service processes across the Web, social and phone channels. The Company’s solutions help business to consumer (B2C) businesses to operationalize digital customer engagement strategies.

EGAN currently has a debt-to-equity of 0.14 and a cash-to-debt ratio of 10.18. Their 1Q 2020 earnings report came out after the close on Thursday but wasn't available at the time this was written. The company currently has $40.31 million in cash and cash equivalents and has a 3-year revenue growth rate of -4.8%. In the TTM, the company generated 23.94% return on equity and has nearly six quarters of SG&A.

Prior to the earnings report, EGAN broke out to a new high on significant volume. The near-term target is $11.50.

Microcap #4: FutureFuel Corp (FF)

FF manufactures diversified chemical products, bio-based products consisting of biofuels, and bio-based specialty chemical products. FutureFuel Chemical Company has two parts of their operations: chemicals and biofuels.

FF currently has no debt as of their 4Q earnings report. Their 1Q 2020 earnings report May 8 after the market closes. The company currently has $243.30 million in cash and cash equivalents and has a 3-year revenue growth rate of -1.2%. In the TTM, the company generated 4.45% return on equity and has $1.64 million in SG&A in the last quarter and $832,000 in capex spending.

After breaking resistance in mid-April, the price is pulling back to the support level near $10. The near-term target is $14.
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