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How to make a longshot bet on this beat-up tech stock about to report
Within each sector there will be winners and losers…even technology this year. I’ll review a speculative options trade on one of those losers. Semiconductor companies such as Marvell, Broadcom, and Nvidia have been on a tear this year. However, some software and IT services companies could have done better. MongoDB Inc (MDB) is a perfect example, down nearly 40% year-to-date. MongoDB is a technology company that develops and provides commercial support for the MongoDB database, an open-source, NoSQL (non-relational) database management system. Unlike traditional relational databases that store data in tables with rows and columns, MongoDB uses a flexible, document-oriented data model that stores data in JSON-like documents. This makes it easier to handle unstructured data, scale horizontally, and rapidly develop applications. MongoDB’s database is known for its scalability, performance, and ease of use, making it popular among developers building modern applications, particularly in cloud environments. MongoDB, Inc. offers a range of products and services. “Cloud” was the buzzword a few years ago; displaced by “AI” more recently, the company’s share price has fallen more than 58% from the all-time highs of late 2021. Concerns about a slowing economy, inflation, and higher interest rates led to increased market volatility, with investors rotating out of high-growth tech stocks and into safer, value-oriented sectors. However, inflation and interest rate concerns appear to be fading, and Jerome Powell, who spoke last week at Jackson Hole, said the time for rate cuts has come. MongoDB operates in a highly competitive space with established players (like Oracle and Microsoft) and newer entrants offering cloud-based database solutions. The increasing competition, especially in the cloud space, could contribute to investor concerns about MongoDB’s ability to maintain its growth trajectory. MDB YTD mountain MongoDB, YTD Additionally, MongoDB has struggled to achieve consistent profitability despite its growth. Investors who prioritized growth over profitability for several years now care about both, particularly as some companies that focused exclusively on growth for years, such as Amazon, are now delivering solid numbers on both the top and bottom lines. MongoDB has grown the topline more than six-fold over the past five years but has yet to report a profitable quarter on a GAAP basis. The company was expected to achieve this milestone for fiscal 2025 So the quarterly earnings release after the close on Thursday is critical. The stock has yet to respond well after the past three reported quarters, particularly the most recent one, May 30, which it fell by 24% the following day. We can’t look at price to earnings on a historical basis for valuation since the company hasn’t had any (earnings); however, if we assume the company may eventually achieve profitability, we can look at price to sales as a guidepost. As the chart below illustrates, MongoDB is about as cheap as we’ve seen over the past five years, including the pandemic plunge. Generally, I prefer to see companies “turn the corner” fundamentally and technically before speculating on the long side after a painful decline. That said, this could be the quarter where the company provides some visibility on when long-awaited profitability might be achieved. Buying a longer-dated call to speculate on the turnaround, financed partly by the sale of shorter-dated calls, is one way to dip one’s toe in the water. Here’s a trade example : Buy MDB Jan. $17 $240 call Sell MDB Sep. 20 $265 call DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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