Robyn, one of the traders followed on the educational site Dough, sold a covered call against HYH, and I'm doing the analysis in order to understand her reasoning.
[HYH corporate site]
HYH
I considered buying HYH shares on Sept. 11, 2015.
For the covered calls, I shall use the OCT series of options, which trades for the last time !# days hence, on Oct 16.
The Company
HYH has little analyst coverage, but those that do cover the company are somewhat negative about its prospects, coming down collectively at a -33% enthusiasm rating.
The company reports a return on equity of 1%, with debt running at 38% of equity.
HYH has only issued three earnings reports, all profitable, since it was spun-off from Kimberly-Clark Health Care in November 2014.
One quarter produced an upside surprise, and two, including the most recent, surprised to the downside.
The earnings yield is 1.31%, compared to a 2.18% yield on 10-year U.S. Treasury notes. The company pays no dividend.
Growth estimates are negative, rendering the "fair" price estimates meaningless.
The stock is selling at 76 times earnings but at a discount to sales. It takes $0.92 in shares to control a dollar in sales.
Institutions own 78% of shares.
HYH next publishes earnings on Nov. 5.
Liquidity
HYH on average trades 92,000 shares a day and supports a narrow selection of option strike prices spaced $5 apart, with open interest running from three figures.
The front-month at-the-money bid/ask spread on calls is 17%, compared to 0.6% on the most traded symbol on the U.S. markets, the exchange-traded fund SPY.
Direction
Click on chart to enlarge.
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| HYH 1 year daily bars |
At this point I can cut the analysis short.
Decision for My Account
HYH's downtrend is supported by negative earnings forecasts and analyst opinion. The negatives are fare too large to support HYH as the base for covered calls. I won't be opening a position on HYH.
-- Tim Bovee, Portland, Oregon, Sept. 11, 2015
References
My price channel trading rules can be read here. My long-term share trading rules can be read here. My volatility trading rules can be read here. The channel rules are based on the classic Turtle Trading rules, which can be read here.
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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 decisions for his or her own account, and take responsibility for the consequences.License
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