Good gracious, last week was volatile for the market as the indexes moved violently day-to-day. Yet, by the close of trading on Friday the S&P 500 and Dow were only down marginally on the week, while the Nasdaq had declined by 1.5%.
The Stock – Samsara (IOT)
While the stock has been super choppy for months (more on that below), Samsara is a name we’ve always kept an eye on for one simple reason: The company has emerging blue chip written all over it, with a huge runway of rapid and reliable growth ahead thanks to a one-of-a-kind story.
The firm is the leader in offering cloud software to firms that have tons of physical assets. Whether it’s a city’s department of transportation, a distribution firm that has a huge fleet of trucks, an oil and gas operator with tons of equipment or even an airline with lots of on-the-ground assets, Samsara and its gigantic moat of data (last year alone it collected more than nine trillion data points) dramatically boosts a client’s bottom line through vehicle telematics, video-based safety monitoring, safety training, equipment monitoring and more that result in fuel savings, fewer accidents, lower insurance premiums, lower maintenance costs (pre-emptive repairs instead of waiting for something to start smoking) and improving utilization.
And Samsara is broadening both its offerings (digitized forms for frontline workers to enter inspections, incident reports and more) and expanding outside the U.S., too (16% of net new recurring revenue in Q4 was international). The size of the opportunity is enormous given how much equipment/trucks/everything is out there, and Samsara is making steady progress in capturing it: In Q4, not only did annualized recurring revenue lift 39% (to $1.1 billion), but net new ARR inked in the quarter was $99 million (about half from new clients, half from existing customers that are boosting purchases), up 39% from a year ago and a big acceleration from recent quarters, all while clients keep paying more money (1,848 pay at least $100k per year, up 49% from a year ago).
The hitch here is valuation, which is very large, but the top brass is bullish, seeing 30%-ish revenue growth this year, and it usually lowballs those outlooks.
Technical Analysis
IOT has made some progress over time, but the vast majority of that has come from earnings gaps higher (good) that quickly run into some resistance (not good). To be fair, this setup looks better than the prior ones, mostly because the stock’s recent consolidation was straight sideways (19% from high to low, compared to a tough 34% drop in the second half of last year) and last week’s volume was IOT’s heaviest ever. Stop – 33
The Covered Call Trade
Buy Samsara (IOT) Stock at 38.5, Sell to Open April 40 Strike Calls (exp. 4/19) for $2, or a Net Price of 36.5 or less
Static Return: $200 per covered call (5.47%)
Breakeven: 36.5
Covered Call Return (if assigned): $350 per covered call (9.58%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 36.5 or less. (In this case 38.5 minus 2 = 36.5. Or another example is you could pay 38.25 for the stock and sell the call for 1.75, which also equals 36.5.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Western Digital (WDC) | 59.1 | 62 | 51 | March 60 -- $2.50 | $2.50 |
| WillscotMobile (WSC) | 50 | 46 | 43.5 | March 50 -- $2.30 | $0.25 |
| Azek (AZEK) | 44.3 | 47 | 39 | March 45 -- $1.45 | $2.50 |
| AppLovin (APP) | 56.5 | 61 | 48 | March 57.5 -- $2.53 | $4.00 |
| JFrog (FROG) | 44.75 | 41.5 | 36 | April 45 -- $2.90 | $1.50 |
| Robinhood (HOOD) | 15.85 | 16.5 | 13.4 | April 17 -- $0.95 | $1.20 |
The next Cabot Profit Booster issue will be published on March 19, 2024.
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