Choosing a high growth company for today’s trade.
music selection: “The Thunder Rolls” — Garth Brooks
weigh-in: 205.0 +0.8 – I blame yesterday’s gourmet food truck grilled cheese.
GrubHub is a fast moving company in the sharing economy space. They have a popular cell phone app for ordering food delivery. Top line growth is in excess of 30% a year. Unlike most high growth companies, GRUB delivers solid free cash flow performance. They can support their growth organically without buying out competitors or racking up burdensome debt. The valuation looks a little frightening at a P/E over 75 but I think it is justified in this case. To my way of thinking, the market is not yet pricing in the value of the company’s data. They know who is eating what and where and that information is going to be very valuable to the competitive restaurant business. Sooner or later, they will monetize.
I sold GRUB171117P00050000 for 2.45 a share. The trade will be in force for 40 days and yields 44.71% annualized (nice!) The trade also enjoys 7.47% downside protection against a decline in share price. This one is going to be volatile. It will support high premiums for some time but will eventually result in an unfavorable assignment. I will write covered calls while waiting for price recovery.
Devour your prey raptors!