It’s another Wednesday to make some mid-week contrarian trades and I am primed up to go against the current on Intuit Inc. (NASDAQ:INTU). Intuit with its market capitalization of $24.85B is a provider of business and financial management solutions for small businesses, consumers, accounting professionals and financial institutions. Corporate-speak aside, Intuit is in the business of revolutionizing how people manage their financial activities using electronic finance products and services.
Why I am Interested in INTU Options
Intuit caught my attention yesterday after it made a new 52-week high of $88.79 in the morning trading activity. At that share price, shares of Intuit were easily trading above the 20, 50 and 200-day moving averages. More interesting is the fact that the stock made 10 new highs in September and that it gained a decent 5.85% within the last one month.
After shares of Intuit have made a new 52-week high yesterday, I had expected that the bullish action would continue today so that the stock will surge higher. However, I was surprised to see shares of Intuit trading down 0.75% to $86.99 as at 10:03 AM EDT today.
Stay Bearish Despite Recent Gains
The first reason I am going short on Intuit is the content of the company’s FY 2015 earnings guidance. For the FY 2015, Intuit gave an adjusted EPS guidance of $2.45 – $2.50 per share on revenues of $4.275B – $4.375B. Analysts had projected earnings of $2.48 per share on revenue of $4.34B for the year. The company says it expects operating income of $800M and earnings per share of $1.70 -$1.75.
For one, the guidance for revenue between $4.275B and $4.375B marks a decline of 3% to 5% from the same period last year. The probability that Intuit will deliver an unimpressive earnings result in the first quarter should also be taken into consideration. It might interest you to know that Intuit has consistently failed to meet expectations in the last three quarters and it has fallen short of expectations in 6 out of the last 10 quarters.
The second reason I am taking a bearish view on Intuit is that the company seems to court the market shorts in their magnitudes. For instance, according to Forbes Dividend Channel, Intuit is the #40 most shorted NASDAQ 100 Component based on the information released by the NASDAQ 100 component.
The chart above shows how the short interest in shares of Intuit has climbed up over the course of the last one month. You will observe that the short interest in the stock has been on a constant increase in line with the gains been recorded in the share price. It would be foolish to turn a blind eye to the short interest and go bullish on Intuit.
How to Trade INTU Options
I think that the recent gains recorded in Intuit are a fluke and I won’t be surprised to see the stock falling from the recent highs in the coming weeks. $80 has been a key support and resistant level for the stock within the last 6 months and you can expect shares of Intuit to fall to $80 (+/-$2) when the company releases its Q1 2015 results in November. I recommend buying the INTU Jan 2015 80.000 put (INTU150117P00080000) at an asking price of $1.75.
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