“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, August 20, 2018

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.


You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO "Trading Capital Management"



Options Trade - - Fortinet Inc (NASDAQ: FTNT) Calls

Wednesday, August 22, 2018

** OPTION TRADE: Buy FTNT SEPT 21 2018 80.000 CALL at approximately $0.90. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $1.80.

Also include a protective stop loss of $0.35.)

The alarming rise of cyber-crime across the world has benefited the cyber security stocks courtesy of growing demand for security products. Therefore, there is a heightened awareness around the need for products related to cybersecurity which has created one of the strongest macro-level trends found anywhere in the public markets.

Fortinet Inc (NASDAQ: FTNT) offers network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide.

Shares have climbed almost 45% so far this year — nearly nine times the broader market — and have booked nearly 200% in the last five years.

Revenue growth isn’t slowing at all (up 21% last quarter), implying that despite increased competition, Fortinet continues to ride secular tailwinds in cybersecurity to 20%-plus revenue growth. Thus, so long as cybersecurity tailwinds remain strong, FTNT stock should do well.

Earnings…..

Fortinet reported its second-quarter results early in the month. Revenue growth accelerated on the back of strong demand for the company's hardware, and full-year guidance was increased to reflect the solid quarter and the expectation that the current product-refresh cycle will continue to drive growth.

CEO Ken Xie summed up the company's performance during the conference call: "The competitive advantage of our Security Fabric architecture coupled with our cloud offering and customer FortiASIC technology are contributing to market share gains. We expect to continue to deliver above-market growth, balanced with profitability."

CFO Keith Jensen briefly talked about the cloud-related business: "Cloud billings of our top-five public cloud providers continue to experience triple-digit growth."

Moving Forward…..

Fortinet's revenue growth accelerated from the first quarter, driven by strong product sales growth. That growth is a function of the product refresh cycle, but Xie made clear that there are still benefits to come.

Fortinet boosted its revenue and earnings guidance for the full year, and it piled on another $500 million for share buybacks. The company's profitability is quickly improving as it grows, and with the cybersecurity market likely to grow for many years, Fortinet may be at just the beginning of its growth story.

Analysts and Hedge Funds Opinions

BidaskClub upgraded shares of Fortinet from a buy rating to a strong-buy rating in a research note issued to investors on Tuesday, August 14th.

As well, BMO Capital Markets reissued their outperform rating on shares of Fortinet in a research note issued to investors on Thursday, August 2nd. The firm currently has a $76.00 target price on the software maker’s stock, up from their prior target price of $61.00. The analysts noted that the move was a valuation call.

Also, Fortinet had its price objective raised by stock analysts at JPMorgan Chase & Co. to $76.00 in a research report issued on Thursday, August 2nd. The brokerage currently has a “neutral” rating on the software maker’s stock.

Several analysts have recently commented on the company…..

  • Oppenheimer raised their target price on shares of Fortinet from $70.00 to $82.00 and gave the company an outperform rating in a research note on Thursday, August 2nd.
  • Credit Suisse Group raised their target price on shares of Fortinet from $43.00 to $52.00 and gave the company an underperform rating in a research note on Thursday, August 2nd.
  • Finally, Monness Crespi & Hardt raised their price target on shares of Fortinet from $64.00 to $70.00 and gave the company a buy rating in a report on Tuesday, July 31st.

One investment analyst has rated the stock with a sell rating, twelve have assigned a hold rating, ten have assigned a buy rating and three have issued a strong buy rating to the company’s stock. The stock has a consensus rating of Buy and a consensus target price of $66.14.

Summary

The stock has a market cap of $12.94 billion, a PE ratio of 147.33, a PEG ratio of 4.74 and a beta of 0.55. Fortinet has a 12 month low of $35.44 and a 12 month high of $77.50.


Options Trade - - Momo Inc (ADR) (NASDAQ:MOMO) Calls

Monday, August 20, 2018

** OPTION TRADE: Buy MOMO SEPT 21 2018 40.000 CALL at approximately $2.20 TO $2.30. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $4.40.

Also include a protective stop loss of $0.90.)

Momo Inc (ADR) (NASDAQ:MOMO), China's fast-growing social entertainment platform, will report earnings on Wednesday, August 22, 2018, before the market opens. The report will be for the fiscal Quarter ending Jun 2018. Based on analysts' forecasts, the consensus EPS forecast for the quarter is $0.59. The reported EPS for the same quarter last year was $0.29.

Wall Street is expecting impressive growth — a 74% increase on the bottom line and a 54% pop on the top. That would come on the back of revenue growth in excess of 100% in fiscal 2017.

Momo share price has lost more than 30% of its value since closing at an all-time high in mid-June due to negative rumors spread by short sellers and is currently offered at a bargain ahead of Q2 earnings.

MOMO is in the midst of testing its 200-day moving average. It appears to have held that level, and it could head back toward its 50-day average and beyond in the relative near term.

Momo is likely to be a very volatile investment for the years to come. But it offers a great margin of safety at current price.

Influencing Factors

In February 2018, it acquired China's top dating app Tantan, the "Tinder of China," already showing promising results in early monetization.

Despite a 60% earnings growth in Q1 2018, Momo still has a Trailing P/E of 21, at the low end of the P/E pendulum for such growth.

With an audience growing inexorably as the Millennials and Gen Z (digital natives, high fluency in technology) are taking over the world, more users are flocking to innovative mobile social platforms to spend their time and discretionary income. Momo is one of the key companies in China that has benefited from that trend over the last three years.

Momo is growing its top line without sacrificing its operating margin. Management has found ways to dramatically expand the business for the last three years despite fierce and overwhelming competition in China.

There is still a significant untapped market in China and Mobile Internet user penetration is expected to grow from 47% in 2017 to 62% in 2022. It will naturally bring more viewers to the various social networks available in China. For reference, that penetration is estimated at 73% in the US in 2017.

Live streaming has already become a mature industry with many different segments, with focus on the "entertainment" side of the market rather than the e-commerce side.

Beyond online dating, Momo is also venturing into mobile gaming with major partners, suggesting there are other growth stories that could unfold in the near future.

Tantan…..

Momo appears more similar to a US company like Match Group - targeting several audiences and business models - than a pure play like Snapchat - focused on one platform and one core business model.

Indeed, in May 2018, Momo went back to its online dating roots by acquiring Tantan - often dubbed the "Tinder of China."

Tantan - the leading Chinese dating app - already has over 20 million MAU and growing. More importantly, Tantan is only starting to monetize its audience similarly to Tinder with subscription and a la carte features such as 'superlikes' or 'see who likes me' kinds of products according to Karen Chan from Jefferies.

Tantan's revenue is growing, and it's growing fast.

Analysts and Hedge Funds Opinions

Standpoint’s top analyst Ronnie Moas upgraded MOMO shares from Hold to Buy, with a price target of $54, which represents a potential upside of 31% from where the stock is currently trading.

Moas commented, “MOMO is my recommendation from August 30, 2017. It jumped 55% for me and I closed it out at $53.31 on June 18 (six weeks ago). It has dropped by 25% since my exit and is now trading at $40. I would reinstate this at this time from Hold to Buy with a $54 price target for 2020 (35% upside). The stock is now trading at just ~13 X earnings estimates for next year. Revenue growth should be 25%. There is 1 billion dollars in cash on their balance sheet with no debt against the market cap of 8 billion dollars. If you stripped out the cash, the stock is trading at 11.5 X earnings.

Also, Standpoint Research upgraded shares of Momo from a hold rating to a buy rating in a report issued on Tuesday, July 31.

As well, ValuEngine upgraded shares of Momo from a sell rating to a hold rating in a research note issued to investors on Friday, August 10th.

One investment analyst has rated the stock with a sell rating, two have issued a hold rating and thirteen have assigned a buy rating to the company. The stock has an average rating of Buy and a consensus target price of $59.91.

Summary

Momo is barely scratching the surface of advertising revenue and is focusing on retaining users and making its platform a great free experience. They add compelling features such as group chat to maintain viewers in their ecosystem. While the barrier to entry for newcomers in the live-streaming field might look low, companies like Momo are building a network of talent agencies and services for streamers that will become harder to match for competitors.

Momo is a profitable, high-growth Chinese mobile dating and social networking company and has a strong track record, a huge addressable market, and a unique way of connecting users. With Tantan, Momo has just invested in the online dating leading app in China, positioning itself as an inescapable force to reckon with in the Chinese social network landscape.

MOMO has a market cap of $8.42 billion, a PE ratio of 24.93, a PEG ratio of 0.83 and a beta of 1.55. Momo has a 12-month low of $22.49 and a 12-month high of $54.24.