NEW BEARISH Plays
58.com Inc. - WUBA - close: 39.72 change: -0.42
Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below
Why We Like It:
WUBA is part of the technology sector. They are one of several Chinese Internet stocks that see a lot of action in the market with big moves both directions. If you can catch one of WUBA's big moves it can be profitable.
The company has been compared to a Chinese version of Craiglist. They operate an online market for merchants and consumers in China. Growth has been significant. Their most recent earnings report was November 12th. WUBA reported their Q3 results with a profit of $0.09 per share when Wall Street was actually expecting a loss of 0.04 per share. Revenues in the third quarter soared +73% to $72 million. Gross margins improved +0.8% to 95.3%. WUBA management then raised their Q4 guidance.
It was a bullish earnings report and the stock soared. You can see the big move in mid November. Yet something happened a couple of weeks ago.
Nearly all of the Chinese Internet stocks were crushed on December 8th. WUBA has struggled to recover. The recent bounce stalled at the 200-dma. Today's rebound attempt failed at the 50-dma. Shares have not participated with the big two-day rally in the U.S. market.
I consider this a technical trade. The company's sales growth and earnings results look bullish. Yet the stock is clearly not acting bullish. Plus, the bears do have some ammunition to build a case. If you tried to build a bearish story you could easily argue the stock is expensive with a P/E of 107. In their latest earnings report nearly all of WUBA's major expenses, including research and development, sales and marketing, and their operating expenses, all more than doubled from a year ago. While growth has been huge their growth is slowing. This year revenues are up +77% but they're expected to slow down to +54% in 2015.
WUBA has found recent support in the $38.90-39.00 area. Tonight I'm suggesting small bearish positions if WUBA can trade at $38.85. We want to limit our position size because the stock can be so volatile. You may want to use the options instead to help limit your risk. I would aim for the September and October lows in the $34.65-34.75 zone.
NOTE: I'm listing the April options only because the February or March options are not available yet. We should see new options available soon.
Trigger @ $38.85 *small positions to limit risk*
- Suggested Positions -
Short WUBA @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the APR $35 PUT (WUBA150417P35) current ask $3.00
Option Format: symbol-year-month-day-call-strike