Options Trade – Xoom Corp (NASDAQ:XOOM) Calls
Tuesday, April 29, 2014

**OPTIONS TRADE: Buy the XOOM Oct 2014 25.000 call (XOOM141018C00025000) at or under $2.25, good for the day. Place a protective stop limit at $0.85 and a pre-determined sell at $4.50.

by Ian Harvey

April 29, 2014

Introduction

There are multiple types of daily gaps, but for most investors, there are only two types that matter. These are called exhaustion gaps and breakaway gaps.

Exhaustion gaps occur after an extended trend. They represent the last surge of buying or selling prior to the trend changing direction. When they occur after an uptrend, these gaps are great indicators for investors seeking to short a stock. When exhaustion gaps occur after a downtrend, it's a powerful long signal.

The reason this works is the fact that professional traders buy weakness and amateurs buy strength in most cases. This means that the big money looks for discounts in share prices illustrated by a gap down, whereas amateurs often pile into a stock near the top when the big money starts to sell.

A breakaway gap occurs when price breaks out of a narrow range. This can occur after a long up or down price trend. In this case, the difference between exhaustion gaps and breakaway gaps is that the breakaway gap is in the opposite direction of the trend.

One stock that fits the breakaway gap pattern is Xoom Corporation (NASDAQ: XOOM).

The company bills itself as the easiest way to transfer money around the world. It has become a leading digital money transfer method in 31 nations. Consumers can use the Internet to send money via their mobile phones, tablet or PCs in a secure, fast and extremely cost effective manner. XOOM has over a million active clients and has transferred over $6.1 billion.

This company is riding the wave of consumer mobility and being disruptive to the high cost of bank wires and traditional money transfers.

Last Wednesday, the stock gapped from just below the $20 range to above its 50-day simple moving average in the $23 area on high volume. The stock then held above support at the 50-day on Thursday. Since then it has pulled back which allows for a nice entry price for this options trade.

Company Details

Xoom Corporation (Xoom) is engaged in online international money transfer service. Its customers use Xoom to send money to family and friends in 30 countries. The Company generates revenue from transaction fees charged to customers and from foreign exchange spreads on transactions where the payout currency is other than United States dollars. In February 2014, Xoom Corp acquired BlueKite, LTD, a technology company that develops solutions and applications.

Key Statistics for XOOM

Current P/E Ratio (ttm) 120.9444
Estimated P/E(12/2014) 106.7157
Relative P/E vs. SPX 7.0596
Earnings Per Share (USD) (ttm) 0.1800
Est. EPS (USD) (12/2014) 0.2040
Est. PEG Ratio -
Market Cap (M USD) 826.93
Shares Outstanding (M) 37.99
30 Day Average Volume 816,604
Price/Book (mrq) 3.0316
Price/Sale (ttm) 5.7655
Dividend Indicated Gross Yield -%
Cash Dividend -
Dividend Ex-Date
5 Year Dividend Growth -
Next Earnings Announcement 07/24/2014

Technical Analysis

Xoom Corp has a 52 week low of $16.90 and a 52 week high of $36.46. The stock has a 50-day moving average of $20.85 and a 200-day moving average of $26.28.

The company has a market cap of $852.3 million and a price-to-earnings ratio of 137.29.

Earnings

For the quarter, Xoom delivered a whopping 48% increase in revenue to $35.9 million as gross sending volume grew 49% to $1.6 billion and transactions jumped 42% to nearly 2.9 million. Active customers and new customers, two key measures of ongoing returning and new cash flow, grew 34% and 7%, respectively. Adjusted profit for the quarter tripled to $0.06 per share from $0.02 in the year-ago quarter.

By comparison, Wall Street was looking for just $34.3 million in revenue and a $0.04 loss per share! While Xoom's second-quarter guidance of EPS ranging from $0.02-$0.06 on $38 million-$40 million in revenue was right in line with expectations, its full-year forecast of $157 million-$162 million in revenue and EPS of $0.15-$0.22 compares favorably with the Street's current consensus of $156.9 million in revenue and $0.09 in EPS.

Analysts Opinions

Equities research analysts at SunTrust raised their price objective on shares of Xoom Corp from $33.00 to $40.00 in a research note issued to investors last Wednesday. The firm currently has a “buy” rating on the stock. SunTrust’s price target would suggest a potential upside of 71.38% from the company’s current price.

Also, the company has been the subject of a number of research reports:-

• Analysts at Evercore Partners upgraded shares of Xoom Corp from an “underweight” rating to an “equal weight” rating in a research note on Wednesday, April 16th. They now have a $15.00 price target on the stock.

• Separately, analysts at Buckingham Research reiterated a “buy” rating on shares of Xoom Corp in a research note on Monday, April 14th. They now have a $32.00 price target on the stock.

• Finally, analysts at Buckingham Research initiated coverage on shares of Xoom Corp in a research note on Monday, April 14th. They set a “buy” rating and a $32.00 price target on the stock.

One investment analyst has rated the stock with a hold rating, five have issued a buy rating and one has issued a strong buy rating to the stock. Xoom Corp currently has a consensus rating of “Buy” and an average target price of $32.86.

Conclusion

Remember, a gap higher should never be the sole reason you decide to buy a stock. But in XOOM's case, the breakaway gap higher is supported by strong first-quarter results.

Revenue jumped 48% year over year to $35.9 million. Gross sending volume was higher by 49% at $1.6 billion, and active customers of 1.1 million represented a 34% increase from this time last year.

XOOM said it expanded its network by partnerships with Metrobank, Philippine National Bank, HDFC Bank in India, and Banco Popular Dominicano in the Dominican Republic.

The company projected full-year 2014 revenue to be between $157 million and $162 million, with adjusted EBITDA of between $12 million and $15 million.

With a disruptive business model, solid fundamentals and a promising breakaway gap on the chart, XOOM looks like a good buy here. Shares could run all the way to $30, which is nearly 30% above current prices.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the XOOM Oct 2014 25.000 call (XOOM141018C00025000) at or under $2.25, good for the day. Place a protective stop limit at $0.85 and a pre-determined sell at $4.50.



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