Last week was full of ups and downs for the market, as the inflation/economic story continues to swing with every data point. And while there was volatility, by week’s end the S&P 500 and Nasdaq had risen marginally, while the Dow had gained 1%
The Stock – Pinterest (PINS)
Social media site Pinterest has long been popular for its recipes, home-and-style inspiration and crafting ideas, as well as for its organizational and planning tools. But a recent shift of focus on increasing advertising revenue, driven by strategic partnerships with giants like Amazon and Salesforce, continues to be a key facilitator for e-commerce on Pinterest, resulting in “significant improvements” in profitability in the company’s first quarter, while seeing the fastest user and revenue growth in three years.
Indeed, the company said it’s capturing a growing percentage of advertising budgets among its clients as they realize how effective the platform is for getting the attention of style-conscious consumers: Pinterest easily bested Wall Street’s expectations for sales and earnings in last week’s Q1 report, while growth in global monthly active users (up 12%) accelerated for the seventh straight quarter and surpassed 500 million for the first time. Revenue of $740 million increased 23% (sales growth is also accelerating), while earnings of 20 cents a share more than doubled and adjusted EBITDA of $113 million soared by an eye-popping 320% (all reasons for the stock’s strength).
Management credited the sanguine results on the company’s investments in artificial intelligence and “shopability,” which it said was “driving even greater returns for advertisers and gaining access to performance budgets.” And with analysts estimating that Pinterest represents only around 5% of the ad budgets for many of its larger customers, the growth runway should be sizable as more of them are expected to scale their ad spend on the platform going forward. Meanwhile, demographic trends remain favorable for Pinterest, which is seeing its largest and fastest-growing user base among Gen Z, and most expect continued benefits from its third-party advertising deal with Amazon.
Looking ahead, Wall Street sees high-teens top-line growth and surging earnings over the next few quarters.
Technical Analysis
After a long, choppy sideways pattern that saw the stock capped by resistance in the upper 20s, PINS broke free last November after earnings and had a solid run to 42 in February. A sour earnings reaction hit the stock at that point, kicking off a tedious decline (27% from high to low) to the 40-week line last month. But now the Q1 report has cleared the air, with PINS gapping back to the top of its three-month range and holding firm in recent days. Stop - 35
The Covered Call Trade
Buy Pinterest (PINS) Stock at 41, Sell to Open July 41 Strike Calls (exp. 7/19) for $2.25, or a Net Price of 38.75 or less
Static Return: $225 per covered call (5.8%)
Breakeven: 38.75
Covered Call Return (if assigned): $225 per covered call (5.8%)
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 38.75 or less. (In this case, 41 minus 2.25 = 38.75. Or, another example is you could pay 41.25 for the stock and sell the call for 2.50, which also equals 38.75.)
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 |
| Permian Resources (PR) | 16.7 | 17.4 | 14.2 | May 17 - $0.75 | $0.75 |
| Toast (TOST) | 24.05 | 23.65 | 20 | May 25 -- $1.75 | $1.20 |
| CNX Resources (CNX) | 23.9 | 24 | 21 | May 24 -- $1.08 | $0.60 |
| Eldorado Gold (EGO) | 15.45 | 14.8 | 12.7 | May 16 -- $0.70 | $0.10 |
| Coupang (CPNG) | 22.2 | 23.3 | 18 | May 22.5 -- $1.20 | $1.40 |
| SweetGreen (SG) | 21.8 | 23 | 18.5 | May 21 -- $2.30 | $3.00 |
| Pan American Silver (PAAS) | 18.75 | 18.8 | 15.8 | June 19 -- $1.10 | $1.10 |
The next Cabot Profit Booster issue will be published on May 14, 2024.
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