• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Options

Normally I Would Shun This Stock, But Now It's a 'Smart' Option

Here's a way to trade the growth name SmartSheet.
By BRET JENSEN
Nov 20, 2022 | 07:30 AM EST
Stocks quotes in this article: SMAR

This is the type of stock I have been avoiding like the plague throughout this year: A name that is delivering stellar revenue growth, but has not achieved profitability yet.

It's SmartSheet (SMAR)  -- and now I've got a covered call idea for the stock.

Let me explain. As interest rates have spiked in 2022, growth stocks similar to SmartSheet have been absolutely pummeled. But with interest rates starting to moderate and valuations for this type of equity much, much lower than where they started the year, I am slowing pivoting. This type of risk/reward profile is becoming more attractive. This is especially true as I can substantially reduce downside risk via this simple option strategy while still targeting a lucrative potential return.

Seattle-based SmartSheet is subscription as a service company that offers an easy-to-use project portfolio Management, or PPM software platform. It promises to make workflow management easy and efficient. It has effectively expanded its capabilities over the years and gets approximately 85% of its overall revenues from subscription fees.

Despite the tough economy, the company posted 40% revenue on its last quarterly earnings report. Clients spending at least $100,000 annually on the platform jumped by more than 60%. Despite posting a net loss of $13.5 million for the quarter, the company had positive cash flow. In addition, SmartSheet has no debt and approximately $450 million of cash and marketable securities on its balance sheet. Therefore, it has absolutely no need for dilutive additional financing, an important trait in the current market.

This is probably a key reason very little of the outstanding float is currently held short, unlike many unprofitable growth stocks. The stock is down over 60% so far in 2022 but the shares do seem to be trying to put in a technical floor right under the $30 level. Four analyst firms reiterated Buy ratings after the company's last quarterly report with price targets ranging from $46 to $54 a share.

Now seems an appropriate time to start to slowly accumulate a stake in this fast-growing name that appears to be "on sale" from a long-term perspective. Especially if I can significantly mitigate further downside risk via the covered call trade outlined below.

Option Strategy:

This is how one can execute a covered call position in SMAR. For this trade, I am going to pick a strike price significantly under the stock's current trading levels. This provides more downside protection and sets up a good return. Also, the liquidity at this strike price is promising.

Using the June $25 call strikes, fashion a covered call order with a net debit in the $20.50 to $20.75 a share range (net stock price - option premium). This strategy provides downside protection of over 25%. In addition, even if the stock declines a bit over 10% during the option duration, I am locking in a just over 20% potential return.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jensen was long SMAR.

TAGS: Investing | Options | Stocks

More from Options

This Option Play Should Make Some 'Bread'

Bret Jensen
May 21, 2023 7:00 AM EDT

Let's look at this Ohio-based financial services name -- with credit partners that include Victoria's Secret -- and why the bad news should be priced in already.

This Trade Is Fit for a Marathon

Bret Jensen
May 14, 2023 7:00 AM EDT

Here's an options trade for Marathon Petroleum Corporation.

When Options Trading, Know This No. 1 Rule

Bob Lang
May 11, 2023 11:30 AM EDT

In this final part of a three-part series on options trading, let's check out what's most important: managing the trade.

This Biotech Is a Sight for Sore Eyes

Bret Jensen
May 7, 2023 7:30 AM EDT

Let's see how to play Aldeyra Therapeutics, a promising small-cap company out of Massachusetts.

In a World Gone Crazy, GOOD and Boring Is a 'Perfect' Antidote

Jim Collins
May 5, 2023 2:30 PM EDT

This is exactly the kind of buy-write candidate you want.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:48 AM EDT CHRIS VERSACE

    Latest AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • 03:25 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Don't Just Sit There and 'Hope' for Your Stocks, M...
  • 07:32 AM EDT BOB LANG

    Webinar Thursday After the Close: Option Spread Trading

    Thursday, my good friend and colleague Sam DeMarco...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login