NEW DIRECTIONAL CALL PLAYS

Demandware, Inc. - DWRE - close: 67.05 change: +1.95

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 440 thousand
Entry on March -- at $---.--
Listed on March 07, 2015
Time Frame: Exit prior to April option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Cloud computing remains a growth area for the technology sector and DWRE continues to see significant growth.

DWRE is in the technology sector. They're considered part of the software industry. According to the company, "Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world's leading retailers to continuously innovate in our complex, consumer-driven world. Demandware's open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster."

This stock saw huge gains in 2013. Unfortunately the momentum vanished in 2014. Last year was very rocky for the share price in spite of consistent earnings results from the company. Three out of the last four quarters have seen DWRE beat Wall Street estimates on both the top and bottom line. The company's revenues in 2014 grew +52%. Their customer base grew +31%. Average revenue per customer was up +12%. Their backlog of unbilled subscription revenue soared +37% to $461 million (actually +42% if you account for currency fluctuations).

Their most recent results came out February 19th and DWRE missed the EPS estimate by one cent. Yet that didn't stop shares from surging higher the next day (February 20th). Now the point & figure chart is bullish and forecasting a target at $79.00.

Technically the rally in DWRE over the last weeks has produced a huge bullish breakout on the weekly chart. Now shares have broken through price resistance near $65.00 and could see some short covering. The most recent data listed short interest at 19% of the small 32.4 million-share float. The stock displayed relative strength on Friday with a +2.9% gain while the rest of the market was sinking. We are suggesting a trigger at $67.35.

Trigger @ $67.35

- Suggested Positions -

Buy the APR $70 CALL (DWRE150417C70) current ask $2.65

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:




NEW DIRECTIONAL PUT PLAYS

GoPro, Inc. - GPRO - close: 40.13 change: -0.95

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.0 million
Entry on March -- at $---.--
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Sometimes the old saying "what goes up must come down" definitely rings true in the stock market. Shares of GPRO produced a rocket ride higher last year. The stock held its IPO in June 2014. They priced at $24.00 a share and opened at $28.65. By September 30th shares of GPRO had closed at $93.70. The stock never made it to $100 but it got close. GPRO peaked in early October and it's been downhill ever since.

If you're not familiar with GPRO they are in the consumer goods sector. The company makes photography equipment. They're best known for their outdoor, waterproof, action-cameras that take high-definition video. GPRO also sales mounts, accessories, and software for their cameras. Late last year GoPro cameras were the Christmas gift to give or get. The company sold 2.4 million units in the fourth quarter. That's about 1,000 cameras an hour.

GPRO's most recent earnings report February 5th. They reported Q4 earnings of $0.99 a share. That is 29 cents better than expected. Revenues soared +75% to $633.9 million, significantly above estimates. Gross margins rose from 42% to 48%. Unfortunately for shareholders the stock dropped on its earnings report thanks to soft guidance.

Everyone was expecting GPRO to blow away the Q4 numbers. It was their first holiday season as a public company and GPRO said they were not hindered by lack of capital or employees like they were in previous years. Investors were not happy to hear GPRO's Q1 guidance in the $0.15-0.17 range. Wall Street estimates were for $0.17.

Plus the company might be having an identity crisis. They keep saying they're going to be a media company. It's true that GPRO's youtube channel has seen incredible growth. However, it's not driving revenues. Even Google, who owns Youtube, is having a hard time making a profit with the video-sharing website. Optimists will say that GPRO's youtube channel helps drive brand awareness and loyalty. They might be right. Until GPRO finds away to monetize their "media" they're just a hardware company. Of course the are a hardware company that has seen incredible growth with the number of cameras sold surging from about 400,000 in 2010 to 5.2 million in 2014.

If GPRO's weaker than expected Q1 earnings guidance wasn't enough to sour the market's mood for the stock then a high-level executive resignation may have been the tipping point. When GPRO reported its Q4 results they also announced that Nina Richardson, their Chief Operating Officer, was resigning effective February 27th. Naturally investors wondered what does Richardson know that the rest of us don't.

GPRO shares have also been hampered by a big stock lock up expiration. On February 17th another 76 million shares came available. Surprisingly the stock actually bounced on the lock up. There were probably too many shorts all expecting a big drop and when it didn't materialize there was a rush to cover. You'll notice on the chart that the bounce failed at its trend of lower highs.

Another concern for GPRO has been the FAA's new limitations on drones. Right now they're just proposals and not yet law. However, it's worth noting that many people buy GPRO cameras to put on their drones for aerial photography. GPRO has even hinted they will make action-camera ready drones soon. If the FAA rules are too strict it could damage consumer sales of drones, which would be a lessen demand for GPRO-like cameras.

Right now the FAA issue is a dark cloud on the horizon. The bigger issue impacting GPRO shares is competition. China's biggest smartphone maker, Xiaomi, is getting into the action camera business. They are making outdoor, waterproof cameras with equipment from Ambarella (AMBA). Ambarella is the same company that GPRO uses for its semiconductor technology that captures and processes video.

GPRO, as a hardware company, is vulnerable to competitors with cheaper products. Xiaomi's new cameras are about half the cost of GPRO's similar models. The GoPro Hero is about $130 while Xiaomi's YiCamera will cost you $64. Currently Xiaomi does not have any products that compete with GPRO's flagship products but that's probably just a matter of time. If you're a consumer would you rather pay $150 for a Xiaomi camera with AMBA chips in it or $400 for a high-end GPRO with AMBA chips in it? This is going to be a serious challenge for GPRO's growth in Asia, especially China.

GPRO optimists will argue that the company has already beaten all of its competitors thus far (including Garmin, Panasonic, Sony, etc.). If competition from Xiaomi doesn't scare the bulls, how about Apple Inc.? Apple (AAPL) recently won a patent fight for its own outdoor digital camera design. This new design is supposed to have a better battery life than GPRO's and have less wind resistance. Currently AAPL is not a competitor but if they do decide to jump in it would be bad news for GPRO.

With all this potentially negative news it's not surprising to see a high amount of short interest. The most recent data listed short interest at 19.2 million shares versus a float of 47.7 million (about 40% of the float). However, these numbers may not reflect the new 76 million shares available from the recent lock up.

Technically shares of GPRO are in a bear market with a bearish trend of lower highs and lower lows. Today the stock is hovering just above round-number support at $40.00. The point & figure chart is bearish and forecasting at $30.00 target. The intraday low last week was $39.58. We are suggesting a trigger to buy puts at $39.40.

Trigger @ $39.40

- Suggested Positions -

Buy the APR $38 PUT (GPRO150417P38) current ask $1.90

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart: