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TRADE IDEA: $SMAR

Small / mid cap tech is the most bullish segment, and thus we add $SMAR to our Top 3 Ideas for w/c 28th Dec 2020.

Nirnaeth
Nirnaeth

What's the business?

Smartsheet is a software as a service offering for collaboration and work management, used to assign tasks, track project progress, manage calendars, share documents, and manage other work, using a tabular user interface.

What's going on?

On December 7th 2020, $SMAR shares move gapped up +10.7% on high volume as it reported for its Q3 report that earnings per share rose 20.00% year over year, whilst revenue increased by 38.32% year over year.

What does this mean?

The stock reported positively as it beat analysts’ expectations and although it handed back some of its gains on the day, it held onto most of it on heavy volume. This signals conviction in the future of the stock. Analysts price targets were promptly upgraded to a range of $80 to $90.

After it’s initial gap-up after it announced of earnings, we saw profit taking occur. This is often a healthy sign, as people lock in profits and seek to re-enter at a later stage. $SMAR indeed continues to move upwards, and in doing so exhibits strong relative strength compared to the broader market, even more so as it is part of the small / mid cap technology segment which has a very bullish nature at the moment.

It continues to move upwards in the ascending triangle pattern that we look for after a Power Earnings Gap. Although last week it has been somewhat range-bound, we feel that this is more due to the broader market which retraced slightly, rather than the strength of the individual stock. The Stochastic appears to confirm this, as it reached oversold territory and is on the verge of curving upwards again.

Why should I care?

For your trade: a strong break-out candidate

Although nothing is certain in trading, we feel that $SMAR has all the hall-marks of an imminent breakout. Nevertheless, there is no options flow of note, and thus we want to see a break and hold of $74.22.

Therefore, we recommend the following criteria to help you manage your trade:

Entry: $ 74.22 - $75.75
Stop Loss: $71.00
Initial Profit Target: $82.00

For your risk: an attractive risk / reward ratio

$SMAR exhibits relative strength compared to the broader market and has an attractive setup, with no near-time earnings date which may add additional risk. We thus feel fairly confident about the risk / reward for this trade.

Likelihood: 6 / 10
Risk / Reward Ratio: 2.4
Duration: 1 Month
Earnings Date: 16th March 2021

Please be aware that if your holding period extends over a future earnings date, the volatility of the stock rises and thus its risk profile inherently increases.

Trade Ideas

Nirnaeth

Specialises in trading high short interest break-outs on disruptive small-caps for explosive upside.