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Advertising technology company PubMatic ( PUBM ) is a small-cap name, but with the right covered call business, it can offer a huge opportunity.
The company, which has a market capitalization of approximately $1.22 billion in 2018 It went public in 2020, and like other businesses that went public at that time — through IPOs or the special-purpose buyout company craze — the shares opened at first, but then sold off sharply. Next quarter.
The company posted strong quarterly earnings this week, and investors who ditched PUBM may have thrown the baby out with the bathwater. Additionally, the options against this equity are both liquid and offer strong return potential.
PubMatic provides cloud services that enable programmatic advertising transactions for web creators and advertisers. Advertisers and digital publishers can connect and discuss pricing and features that benefit from the huge increase in programmatic advertising. Among the services PubMatic offers are workflow automation, data integration, audience services and high-quality inventory on a global omnichannel infrastructure for advertisers.
In the year As economic growth slows sharply in 2022 from the strong pace of 2021, the entire industry faces stress due to concerns about reduced spending on marketing. Indeed, a number of companies in this sector have recently cut guidance given the slowdown and uncertainty surrounding it. PubMatic put most of those concerns to rest for a while when it reported strong quarterly results on Monday.
The company easily beat both the top and bottom consensus on its second quarter results. Management reaffirmed its guidance and revised its forecast for adjusted earnings excluding interest, taxes, depreciation and amortization for fiscal 2022. PubMed has no debt and a rock-solid balance sheet of north of $180 million in cash, which represents 15 percent of the stock’s market value at its current trading level.
Six analysts, including Oppenheimer and RBC Capital, reissued buy ratings on the stock after second-quarter results crossed the wire. A couple had slightly higher price target revisions. All of this sets up a solid covered calling opportunity in PubMatic.
Alternative strategy
Here’s how to launch a position in PUBM with a covered call strategy. Given the trend in the market in recent weeks, we are going to go with a call strike below the current trading level for some additional downside protection.
Using the January $22.50 call strike, fashion a covered call order with a net debit of $18.50 to $18.70 a share range (net stock price – option premium). This strategy provides both downside protection and a potential upside of just over 20%, even if the stock does nothing over the five-month option period.
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