NEW BEARISH Plays
Autodesk, Inc. - ADSK - close: 50.09 change: -0.80
Stop Loss: 52.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 29, 2015
Time Frame: Exit PRIOR to earnings on August 27th (unconfirmed)
Average Daily Volume = 2.3 million
New Positions: Yes, see below
ADSK is in the midst of a business transition and analysts believe the process is going to be painful for the company's financials.
ADSK is in the technology sector. According to the company,
"Autodesk helps people imagine, design and create a better world. Everyone-from design professionals, engineers and architects to digital artists, students and hobbyists-uses Autodesk software to unlock their creativity and solve important challenges." Unfortunately the corporate description doesn't tell you much. ADSK sells software. The biggest part of their income is selling 3D CAD (computer aided design) software.
The trend in the company's earnings guidance is not that encouraging. ADSK reported their Q3 2015 results on November 20th. The beat estimates on both the top and bottom line but they guided lower for Q4. The company did it again on February 26th with their Q4 results, which beat estimates on both the top and bottom line but management lowered guidance for Q1.
ADSK reported their 2016 Q1 results on May 19th. Earnings were $0.30 per share as revenues rose +9% to $646.5 million. These results beat estimates. Unfortunately, you guessed it, management lowered guidance. This time ADSK significantly lowered their Q2 earnings and sales guidance. They also lowered their full year 2016 earnings and revenue guidance.
There seems to be a growing number of analysts on Wall Street that feel this trend of earnings trouble will continue. It sounds like ADSK is trying to copy Adobe Systems's move from up-front license fees (or perpetual licenses) where the consumer pays one lump sum up front to a monthly subscription model.
One of the challenges for ADSK is that the company depends on resellers for a lot of its sales. This relationship could suffer if ADSK decides to do away with the middleman when they switch to the subscription model. This transition is expected to take a couple of years. Shares have recently received a couple of downgrades as analysts worry the next couple of years will see slowing growth and falling margins.
This concern and the fact that ADSK keeps lowering their earnings and revenue guidance has killed the long-term up trend in the stock. Shares have recently fallen into a bear market (-20% from its highs). Now ADSK is hovering just above major support at $50.00. A breakdown here would be bad news. The intraday low on June 30th was $49.84. I'm suggesting a trigger to launch bearish positions at $49.75. Please note this is a shorter-term trade. ADSK will likely report earnings at the end of August or early September. We will plan on exiting prior to the announcement but thus far the earnings date has not been confirmed.
Trigger @ $49.75
- Suggested Positions -
Short ADSK stock @ $49.75
- (or for more adventurous traders, try this option) -
Buy the SEP $45 PUT (ADSK150918P45) current ask $0.78
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike