How does a car parts company end up with an 18 billion dollar market cap, anyhow?? Well there is really only one way folks: leverage, and lots of it. AZO borrowed it's way to the top. So now they have $4.38 billion in debt and only $134.88 million in cash even though they supposedly made TTM net income available to common of $1.07bn. So where did the money go? The stock pays no dividend and apparently never did.
Call me crazy (and many people would do just that right now for even writing what I am about to write) but I see "mania stock" written all over this one.
While these kinds of legal verdicts are something of a joke, AZO has so little cash on hand that it couldn't even afford to pay the jury award of it recent gender discrimination suit if forced to do so. Again, I don't think they will have to pay it but you can see how they literally have zero war chest against the unknown. They are leveraged to the hilt as if nothing can ever go wrong.
At the end of the day, it was debt that funded this ridiculous exponential chart and it will be it's debt that brings AZO down. As soon as interest rates begin to rise, AZO and other leveraged Ponzis like it will have to begin rolling over debt at higher and higher rates. The Ponzi will not survive long once rates begin to skyrocket. Note: A move toward higher interest rates is a move towards conservatism. AZO is a liberal economic wasteland waiting to happen. The chart and the balance sheet agree on that issue.
Captain,
ReplyDeleteWhat are the ideal Puts for this overpriced dog?
Thanks,
~J.T. Marlin
JT, maybe this will blow up into a mania unwind and maybe it won't. But what is much more likely is that it is at the very least due for a large a-b-c retracement to the level of the prior 4th. If you assume (to be conservative even though I suspect it will be steps up and elevator down) that the downward a-b-c will have about the same down slope as the 5th wave up slope, then it should be in the $350 region around Jan 2016. So there you have it: an option and a strike price that has a good chance of being in the money (or better) in Jan of 2016. 2.45 bid, 3.90 ask, 3.60 last. I would try to fish for them @ 2.85 for a couple hours and if you can't get a bite, consider upping it to $3.20.
ReplyDelete350.00
AZO160115P00350000
3.60
2.45
3.90
Also, the best time to buy puts is on the 3rd wave, not the first. So to be honest, I think money is better spent on finding something that is ready to print a 3rd while allowing AZO to print a 1st (or A) and then a B. Why not use every advantage available to you? The market does not factor in expected wave sizes in my experience. That is an advantage that EW optioneers should always try to take advantage of. Keep it math related instead of gut feel...