New Planet Labs Trade Idea With Profit Taking in Mind
After making a mistake on Planet Labs following an impressive report, I'm back with a new trade idea.
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About three weeks ago, I wrote to you concerning Planet Labs (PL) in response to a better than expected fiscal second quarter earnings release. I have been asked by readers to update that story.
Sales were impressive. The revenue generation print was good enough for year-over-year growth of 20.1%. Even better, remaining performance obligation (RPO) increased 516% year over year to $690.1 million. The firm's order backlog was up a mere 245% on an annual basis to $736.1 million. As I wrote at the time, the firm's biggest problem has become simply meeting a demand for its services that is now growing exponentially.
The fundamentals were strong too. Free cash flow for the period hit the tape at $46.288 million, up from the year-ago comp of -$24.479 million. Looking at the balance sheet, the firm ended the quarter with a cash position of $277.853 million and current assets of $355.463 million. Current liabilities added up to $203.491 million. That includes absolutely no short-term debt, but $148.006 million in deferred revenue, which we know is not a true financial liability.
At the headline level, the firm's current ratio stood at a healthy 1.75. Once adjusted for those deferred revenues, the current ratio increased to a very muscular 6.41. This balance sheet is undeniably robust.
The Guidance Was Strong Too
For the firm's fiscal third quarter, which ends October 31, Plant Labs projected revenue of $71 million to $74 million, which brought the low end of the range above the $69 million that Wall Street had in mind. For the full year, the firm issued revenue guidance of $281 million to $289 million. That also brought the low end of the range well above the $273 million that Wall Street was looking for. Adjusted gross margin was seen at 55% to 57%, while adjusted EBITDA loss was projected to land in between -$7 million and $0.
However, I Made a Mistake
The stock was up almost 48% that day. I wrote to you that though I saw the share price potentially doubling over time, that I did not think I would chase the stock. Well, the stock, on Friday, closed up another 25.6% from where it closed on that day (September 8). I did suggest writing October 17 $8 puts for about $0.55 and/or January 16 $7 puts for about $0.70 to try to catch lightning in a bottle if the share traded off.
The good news is that the October 17 $8 puts are now worth just $0.05, and the January 16 $7 puts are now worth roughly $0.25. So, the trader who did get shot those puts is now up an aggregate 0.95. Not the $2.54 that the equity has gained over that time, but better than a sharp stock in the eye.
My new idea is to cover the puts in order to pocket that $0.95. Then, looking for some eventual profit taking, purchase some $12 puts expiring January 16 for about $2.10, while writing twice as many $10 puts expiring that same day for about $1.10.
By selling twice as many puts as purchased, the bread is essentially free from a net debit/net credit perspective. Additionally, should the shares trade down to the $10 level or lower by expiration, the trader will not only cover the gain of $2 from the options spread, but end up long the shares based on the extra puts sold at what is currently an 18% discount.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
