The Stock Appears To Be Bouncing Off Support
Business Wire reported,
Quidel Corporation (QDEL), a provider of rapid diagnostic testing solutions, cellular-based virology assays and molecular diagnostic systems, announced [recently] financial results for the second quarter ended June 30, 2019.
The stock was up on the news.
The report noted, “Total revenue for the second quarter of 2019 was $108.3 million, versus $103.2 million for the second quarter of 2018.
The 5% increase in sales from the second quarter of 2018 was primarily driven by growth in the Rapid Immunoassay business, and to a lesser extent, by growth in Molecular and Specialized Diagnostic Solutions. Total revenue grew 7% in the quarter on a constant currency basis.
Rapid Immunoassay product revenue, which includes QuickVue, Sofia and Eye Health products, increased 30% in the second quarter of 2019 to $21.8 million, primarily due to a $6.2 million increase in Influenza revenue from the second quarter of 2018.
Cardiac Immunoassay revenue, which includes revenue from the Triage, Triage Toxicology and Beckman BNP products acquired in October 2017, totaled $68.0 million in the second quarter of 2019.
Excluding the foreign exchange impact, Cardiac revenue was $69.9 million, comparable to last year. Molecular Diagnostic Solutions revenue increased 7% to $4.2 million, led by 26% revenue growth from Solana, our instrumented molecular diagnostic system.
Specialized Diagnostic Solutions revenue, which includes revenue from Virology/DHI, Specialty and Other, increased 13% from the second quarter of 2018 to $14.3 million.
“We had another solid quarter, marked by continued strength of our Sofia franchise, both in terms of placements and revenue. Our Triage franchise continued on track as well, with Cardiac revenue coming in at the upper end of the range that we had suggested,” said Douglas Bryant, president and CEO of Quidel Corporation.
“In addition, significant progress was made across numerous product development programs during the quarter, which portends well for a steady cadence of new product introductions over the next several quarters, as we efficiently leverage our assets and infrastructure.”
Gross Profit in the second quarter of 2019 increased to $59.2 million, primarily the result of increased revenues and improved product mix related to the prolonged respiratory disease season.
Overall, gross margin for the quarter was 55% as compared to 56% for the same period last year, predominantly due to an unfavorable foreign exchange impact, geographic mix, as well as unfavorable factory absorption.
Net income for the second quarter was $1.3 million, or $0.03 per diluted share, as compared to a net loss of $3.1 million, or $(0.08) per share, for the second quarter of 2018.
On a non-GAAP basis, net income for the second quarter of 2019 was $15.4 million, or $0.36 per diluted share, as compared to net income of $15.9 million, or $0.37 per diluted share, for the same period in 2018.
The stock appears to be bouncing off support in the longer term chart.
A Trade for Short Term Bulls
As with the ownership of any stock, buying QDEL could require a significant amount of capital and exposes the investor to standard risks of owning a stock.
To reduce the risks of a trade, an investor could purchase a call option. This allows them to benefit from upside moves in the stock while limiting risk to the amount paid for the options. However, buying a call option can also require a significant amount of capital and includes the risk of a 100% loss.
Whenever an option is bought, the maximum risk is always equal to 100% of the amount of spent to purchase the option. Since options cost significantly less than a stock, the risk in dollar terms will usually be relatively small to own an option.
To further limit the risks of the trade, an investor could use a bull call spread. This strategy consists of buying one call option and selling another at a higher strike price to help pay for the cost of buying the first call. The spread strategy always reduces the risk of an options trade.
This strategy is designed to profit from a gain in the underlying stock’s price but has the benefit of avoiding the large up-front capital outlay and downside risk of outright stock ownership. The potential risks and rewards of this strategy are summarized in the chart below.
Source: The Options Industry Council
Both the potential profit and loss for the bull call spread are limited. The maximum loss is equal to the net premium paid when the trade is opened. The maximum profit is limited to the difference between the strike prices, less the debit paid to put on the position.
This strategy could be especially appealing with high priced stocks where the share price and options premiums are often a significant commitment of capital for smaller investors.
A Specific Trade for QDEL
Every day, we scan the markets looking for trades with low risk and high potential rewards. These trades are available almost every day and we share them with you as we find them. Now, it’s important to remember these are trading opportunities in volatile stocks.
When we find a potential opportunity, we evaluate it with real market data. But because the trades are volatile, the opportunities may differ by the time you read this. To help you evaluate the current opportunity, we show our math and explain the strategy.
For QDEL, the September 20 options allow a trader to gain exposure to the stock.
A September 20 $60 call option can be bought for about $2.40 and the September 20 $65 call could be sold for about $0.67. This trade would cost $1.73 to open, or $173 since each contract covers 100 shares of stock.
The amount paid to enter the trade is the largest possible loss on the trade. This is generally true whenever a trader is creating a debit to enter an options trade. “Creating a debit” means there is a cost to enter the trade. You could create a debit by simply buying puts or calls to open a directional trade.
In this trade, the maximum loss would be equal to the amount spent to open the trade, or $173.
The maximum gain on the trade is equal to the difference in exercise prices less the amount of the premium paid to open the trade.
For this trade in QDEL the maximum gain is $3.27 ($65 – $60= $5; $5 – $1.73 = $3.27). This represents $327 per contract since each contract covers 100 shares.
Most brokers will require minimum trading capital equal to the risk on the trade, or $173 to open this trade.
That is a potential gain of about 89% in QDEL based on the amount risked in the trade. The trade could be closed early if the maximum gain is realized before the options expire.