I have a long-term options play on an under-the-radar cloud transformation stock poised to take off in 2022. Alight (ALIT - Free Report) , a leading human capital management enterprise that simplifies payrolls' increasing complexities, provides cutting-edge AI-powered solutions for best-fit healthcare & retirement while integrating its client's fragmented HR ecosystem.
ALIT works with companies across the world regardless of size, including 70% of Fortune 100 companies. Alight is undergoing the long and painful (but necessary) transition to the cloud, which has short-lived margin compressing side-effects but should result in unequaled long-term recurring revenue growth and visibility.
A recent study by Alight found that 40% of global enterprises will set in motion a digital payroll transformation project in the next 24 months, creating an enormous opportunity for this best-in-class HR cloud innovator.
Now is the time to jump on the ALIT train before the broader markets catch wind of this fantastic opportunity. Purchasing 6-month call options provides us with extensive exposure at a discounted cost.
The Trade
ALIT is currently trading at around $11.50, far below its intrinsic value, which I established to be roughly $20 a share utilizing a (conservative) comparable analysis by evaluating valuation multiples of its less-adapted competitors, ADP (ADP - Free Report) & Paychex (PAYX - Free Report) .
I am looking at some economical naked ALIT call options with a May 2022 expiration (5/20/22) at a $12.5 strike price. The call costs $1 today ($100 per 100 share contract) and would provide you with over $10K in exposure for less than $1K.
I chose this specific contract (exp. & strike) because it offers decent liquidity (relative to ALIT's other options) and allows for two additional quarterly reports, giving investors/analysts a full year of public results to uncover this hidden gem.
The Catalyst
Superb forward-looking cloud-transformation progress from Alight (ALIT - Free Report) in its 2nd ever quarterly report drove the stock up over 7% in its daily post-earnings action (11/9). However, ALIT's jump allowed warrant holders to exercise their option-like derivatives at $11.50 (that exercise price of virtually every SPAC-related warrant), and early investors are taking some of their gains off the table.
The thinly traded nature of ALIT shares makes them vulnerable to sizable volatility. A sell signal has become ingrained in this under-the-radar stock whenever ALIT breaches $11.50, and the prevailing rally runs out of fuel. ALIT's $11.50 warrant "strike" price coupled with relatively low daily volumes generates buying opportunities for us on every dip below that price.
ALIT warrants (ALIT/W or ALIT.WS) have been trading much more buoyantly than its underly stock since it debuted this past summer and are implying a future stock price of $14.65 ($11.50 strike + $3.15 cost of warrant).
ALIT keeps finding buyers at its latest $11.35 support level, and it's only a matter of time before these liquidity-seeking sellers run out of ammunition and the stock heads back towards my $20 price target.
Final Thoughts
Alight is taking all the proper steps in its move to the cloud, with new product rollouts like improvement in its data & AI-powered Worklife platform, which now has a new mobile app that achieved 200k installs within 60 days of its launch. This unique application is expected to decrease its call center volume by 33%.
Alight's Business Process as a Service (BPaaS) solutions, its cloud characterization, grew by 42% year-over-year and now makes up just over 14% of its total revenue. Management rose its Q4 guidance with its cloud transition going more fluid than the company initially projected.
This was ALIT's second earnings report as a public company. I suspect that more analysts will distribute initiation of coverage reports on the stock with bullish outlooks that align with the company's compelling growth narrative.
Happy Trading!
Dan
Equity Strategist & Editor of Zacks Headline Trader Portfolio
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History suggests their performance could be sensational.
From 2012 (when our Director of Research, Sheraz Mian assumed responsibility for the portfolio) through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2024. Don’t miss your chance to get in on these stocks when they’re released on January 2.
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I have a long-term options play on an under-the-radar cloud transformation stock poised to take off in 2022. Alight (ALIT - Free Report) , a leading human capital management enterprise that simplifies payrolls' increasing complexities, provides cutting-edge AI-powered solutions for best-fit healthcare & retirement while integrating its client's fragmented HR ecosystem.
ALIT works with companies across the world regardless of size, including 70% of Fortune 100 companies. Alight is undergoing the long and painful (but necessary) transition to the cloud, which has short-lived margin compressing side-effects but should result in unequaled long-term recurring revenue growth and visibility.
A recent study by Alight found that 40% of global enterprises will set in motion a digital payroll transformation project in the next 24 months, creating an enormous opportunity for this best-in-class HR cloud innovator.
Now is the time to jump on the ALIT train before the broader markets catch wind of this fantastic opportunity. Purchasing 6-month call options provides us with extensive exposure at a discounted cost.
The Trade
ALIT is currently trading at around $11.50, far below its intrinsic value, which I established to be roughly $20 a share utilizing a (conservative) comparable analysis by evaluating valuation multiples of its less-adapted competitors, ADP (ADP - Free Report) & Paychex (PAYX - Free Report) .
I am looking at some economical naked ALIT call options with a May 2022 expiration (5/20/22) at a $12.5 strike price. The call costs $1 today ($100 per 100 share contract) and would provide you with over $10K in exposure for less than $1K.
I chose this specific contract (exp. & strike) because it offers decent liquidity (relative to ALIT's other options) and allows for two additional quarterly reports, giving investors/analysts a full year of public results to uncover this hidden gem.
The Catalyst
Superb forward-looking cloud-transformation progress from Alight (ALIT - Free Report) in its 2nd ever quarterly report drove the stock up over 7% in its daily post-earnings action (11/9). However, ALIT's jump allowed warrant holders to exercise their option-like derivatives at $11.50 (that exercise price of virtually every SPAC-related warrant), and early investors are taking some of their gains off the table.
The thinly traded nature of ALIT shares makes them vulnerable to sizable volatility. A sell signal has become ingrained in this under-the-radar stock whenever ALIT breaches $11.50, and the prevailing rally runs out of fuel. ALIT's $11.50 warrant "strike" price coupled with relatively low daily volumes generates buying opportunities for us on every dip below that price.
ALIT warrants (ALIT/W or ALIT.WS) have been trading much more buoyantly than its underly stock since it debuted this past summer and are implying a future stock price of $14.65 ($11.50 strike + $3.15 cost of warrant).
ALIT keeps finding buyers at its latest $11.35 support level, and it's only a matter of time before these liquidity-seeking sellers run out of ammunition and the stock heads back towards my $20 price target.
Final Thoughts
Alight is taking all the proper steps in its move to the cloud, with new product rollouts like improvement in its data & AI-powered Worklife platform, which now has a new mobile app that achieved 200k installs within 60 days of its launch. This unique application is expected to decrease its call center volume by 33%.
Alight's Business Process as a Service (BPaaS) solutions, its cloud characterization, grew by 42% year-over-year and now makes up just over 14% of its total revenue. Management rose its Q4 guidance with its cloud transition going more fluid than the company initially projected.
This was ALIT's second earnings report as a public company. I suspect that more analysts will distribute initiation of coverage reports on the stock with bullish outlooks that align with the company's compelling growth narrative.
Happy Trading!
Dan
Equity Strategist & Editor of Zacks Headline Trader Portfolio
Zacks Naming Top 10 Stocks for 2024
Want to be tipped off early to our 10 top picks for the entirety of 2024?
History suggests their performance could be sensational.
From 2012 (when our Director of Research, Sheraz Mian assumed responsibility for the portfolio) through November, 2023, the Zacks Top 10 Stocks gained +974.1%, nearly TRIPLING the S&P 500’s +340.1%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2024. Don’t miss your chance to get in on these stocks when they’re released on January 2.
Be First to New Top 10 Stocks >>
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