Thursday, April 11, 2013

TRLA: Bull signal on a tech spec

The real-estate search engine Trulia Inc. (TRLA) on Wednesday broke above its 20-day price channel, producing its second bull signal since trading began last September. The first breakout reduced a 56.6% profit.

The first time around, TRLA was staging a recovery from its post-IPO slump, an uptrend that began from $15.84 on Dec. 31 and peaked at $38.22 on Feb. 15. Since then TRLA has been struggling to produce a higher high, but that happy goal lies 16% away.

Wednesday's break-out level was $32.40 and carried the price above a sideways trend in effect since around March 8.

The historical odds of a breakout mean nothing when there's only one data point, of course. TRLA lies well outside of my normal analytical methods. Volume more than tripled as the price approached its February peak and remains well above volume levels seen in January and before.

The question is whether all of this volume represents a new and broad recognition of the genius underlying Trulia's business model, or a distribution of shares under the Greater Fool Theory.

Trulia's real-estate search technology is in the service of the real-estate market, providing potential home-buyers with access to enriched information about available properties and real-estate professionals with access to those home buyers through subscription products.

TRLA is followed by only a handful of analysts, who seem to be generally positive about the company's prospects.

Trulia has yet to earn a profit in the two quarters it has reported earnings. Maybe next year, analysts say.

Institutions own 53% of shares, and price has been bid up to where it takes an astounding $15.04 in shares to control a dollar in sales.

At this point, I dig in my heels and say, "No way!" A company that has yet to make any money with a 15x markup over sales parity?

TRLA on average trades 781,000 shares a day, and it has a very small selection of options strike prices with nearly all the open interest concentrated at the front month at-the-money calls. The bid/ask spread on those calls is 9.5%, a bit on the high side.

The open interest distribution means that I won't trade these options. So it shares only, and that denies me the opportunity for big profits through leverage and the security of being able to hedge the position against declines.

Trulia next publishes earnings on May 6.

Decision for my account: No history to speak of and no options that I'm willing to trade. I'll pass on TRLA. It's an interesting technology speculation (a tech spec?), especially with the real-estate market picking up, but it's not for me. A move to a higher high, above $38.22, would cause me to take another look.


My trading rules can be read here.  A discussion of recent modifications to my trading methods, which haven't yet been incorporated in the original write-up, can be found here.

And the classic Turtle Trading rules on which my rules are based can be read here.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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