Call Options Or Put Options On Bankrate (RATE)?
Bankrate (RATE) is a leading publisher, aggregator, and distributor of personal finance content on the internet. Their flagship website is bankrate.com.
They provide consumers with information about mortgages, deposits, insurance, credit cards, retirement, automobile loans, and taxes. And you’ll often find their information re-published on popular sites like Yahoo!, AOL, CNBC, and Bloomberg.
They make money selling display advertising, performance-based advertising, and generating leads for financial companies.
Here’s the thing…
Bankrate just reported results from the first quarter. And investors weren’t impressed… As you can see in the chart below, RATE is down more than 10% today.
Is this an opportunity to buy call options on RATE before it bounces back? Or is this the time to buy put options on RATE as it comes crashing down?
The bulls make a convincing argument…
First off, Bankrate’s business is growing by leaps and bounds.
Revenue soared 26% to $125 million from the year-earlier quarter. And earnings per share jumped 67% to 10 cents from 6 cents in the same quarter last year.
What’s more, management said all of their product lines posted double digit revenue growth. They’re clearly doing a good job of growing their business.
Here’s the thing…
RATE’s revenue and earnings growth were consistent with the guidance they issued earlier this year. They’re expecting revenue growth of around 25% this year.
More importantly, management hinted “certain initiatives” could provide even stronger results in the second half of the year.
Simply put, management is playing it safe with their guidance. But there’s a good chance of better than expected growth this year.
But the bears have a compelling case as well…
Sure, Bankrate is growing but everything’s relative.
Wall Street was expecting revenue of $126.8 million and adjusted EPS of 19 cents. But RATE only made 18 cents on $125 million in revenue.
RATE clearly fell short of analysts’ expectations. And that’s a recipe for disaster for growth stocks like RATE.
Frankly, RATE is expensive based on their growth estimates. It’s trading at more than 19x forward earnings estimates and at a PEG of 1.24.
Remember, investors are bidding up this stock based on its growth potential. If they can’t live up to expectations, then there’s no reason to own it.
The bottom line is RATE is having a hard time living up to investors’ lofty expectations.
If you think the bulls are right, take a look at buying the RATE September 2012 $25 Calls for around $0.95.
If you think the bears are right, take a look at buying the RATE September 2012 $17.50 Puts for around $1.05.
Good Investing,
Corey Williams
Category: Call Or Put Options?
