Fusion-io (NYSE: FIO) is projected for strong long term growth by analysts but also has been affected in the short term by the poor economic conditions around the globe. It is not the only company to go through this but it has some very big global clients who have slowed down also. Once the markets change these companies will turn around and so will Fusion. It is showing bullish signs and might be worth taking a look at.
As Yahoo Finance describes the company:
"The company engages in the development, marketing, and sale of storage memory platforms for data decentralization in the United States. Its platforms enhance the processing capabilities within a data center by relocating process-critical or active data from centralized storage to the server where it is being processed."
When you think of Fushion-io you need to think beyond our present conditions to the future. As things change, this company will grow. Recently Fusion announced that Cisco (NASDAQ: CSCO) became a new customer, putting its ioMemory in the hardware giant's servers. It already works with Hewlett-Packard (NYSE: HPQ), Apple (NASDAQ: AAPL), and Facebook (NSYE: FB). Cisco Systems will get on board with Fusion-IO's flash storage modules later this year, becoming the latest server maker to offer the technology that is already available in servers from IBM, Dell and Hewlett-Packard.
Just recently, JP Morgan cut prices for Hardware Companies including Apple Inc and Hewlett-Packard Co, citing weak IT spending in Europe, Middle East and Africa, uncertain growth in China and pressures from a strong U.S. dollar. These price target corrections are not a knock on the companies. These changes are due to macro-economic conditions. So it makes sense that Fushion-io would also either struggle or have to re-adjust its projections. Its bearish journey started in mid March at a high of close to 34 and it dropped about 29% to 21. We have seen FIO trade down almost 30% from $29 to $21 and earnings reports from last quarter attributed to that in a small way. But this is a company with projections of very high double digit revenue growth between the end of 2012 and 2011. Though the 4th quarter of this year is not expected to be spectacular, the 3rd quarter is projected to grow by 30%. The company as a whole has done an excellent job maintaining a substantial gross profit margin in excess of 50% of revenues.
So I do not see this company staying down long, especially with the price target of $38 Piper Jeffray has on the stock.
The Options Play
Fusion-io Inc is presently trading at 20.67. With the positive divergence we see in the RSI, it looks like we are seeing signs of weakness in the downward trend with this recent move up. With a very strong resistance level at 21.35, we are looking for a punch up through but must give it time.
- Buy the September 2012 call with a strike of '21.00' (priced at $2.40)
- Sell the September 2012 call with a strike of '22.50' (priced at $1.65)
- Net Debit to Start: $0.75
- Maximum Profit: $0.75
- Maximum Risk: net debit
- Maximum Length of Trade: 3 months
Reasoning behind the Trade
- The positive divergence in the RSI is giving us signs of a weakening downward trend.
- September gives us plenty of protection against time decay.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.