Trading The VirnetX Fire
VirnetX Holding Corporation (NYSE: VHC) has been rallying over the past week amid heavy call volume and increasing implied vols. What is driving the action isn't known at present based on a look at the stock. After remaining steady at the $26-$28 mark for much of June, VHC has now climbed to $38.89.
VirnetX is a development-stage company. The Company is engaged in developing and commercializing software and technology solutions for securing real-time communications over the Internet. The Company is focused commercializing a patent portfolio for securing real-time communications over the Internet. These patents were acquired by its principal operating subsidiary, VirnetX, from Science Applications International Corporation (SAIC).
According to Seeking Alpha, “given the growth of IP-telephony and 4G LTE (Cisco has recently predicted 15B IP-connected devices by 2015,) VirnetX is well-positioned for revenue in the billions in the next 5 years. In the model above, using zero growth after year 5, you can already see how a $100+ valuation of VHC is possible in the coming year. If you look at the earnings potential in 2016, you could be looking at EPS north of $20 with a market and company growing at a CAGR at 20-30%. With a PE equal to growth rate, you could be looking at a potential $400-600 stock in 5 years. This could continue to be a fun year for VHC longs.”
Traders who believe that the upward trend is set to continue might want to consider the following:
- On days when the market is up, VHC shares tends to outperform the S&P 500 index.
- In both short-term and long-term periods, VHC has shown average correlation (>0.2 and <0.4) with the S&P 500 index.
- The stock's average daily price fluctuations have exceeded that of all S&P 500 index firms.
Traders who believe that this form is temporary may consider an alternate positions:
- VHC currently has an Earnings Rating of 2, which is significantly more bearish than the Software Subsector average of 6.2.
- During the past four weeks, analysts covering VHC have made no upward or downward EPS estimate revisions for the current quarter.
- There have been no upward or downward broker recommendation changes for VIRNETX HOLDING over the past 120 Days.
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