Optionable Inc. (OTCPK:OPBL), a provider of natural gas and other energy derivatives trading and brokerage services, is a small cap power play with some very impressive growth and the potential for a major role in the financial services industry. While we may see OPBL as overvalued, being that it is trading at 59x's earning compared to the industry's average of 21.8, considering its earnings growth rates there's a reason for OPBL's high earnings multiple.
OPBL's annual eps growth rate is currently at 392%, compared to the industry average of 81% (and its qtr vs year ago qtr rate of 862% compared to the industry's 110%) which gives OPBL the right to trade at a higher multiple than that of its competitors. With future growth and the release of its next couple earnings reports, OPBL’s high multiples will catch up with its valuation. OPBL also has a very attractive gross margin of 52% compared to the industry's 22%.
Looking at OPBL’s ratios compared to it competitors we can see that OPBL is an upcoming player with the potential to stake a major claim in the financial industry. This is not only based on OPBL’s growth story, but more importantly on the fact that the New York Mercantile Exchange (NMX) has recently purchased a 19% stake in OPBL.OB. The New York Mercantile exchange is the world's largest physical commodity exchange, and having such a large player take a significant position in a small cap company like OPBL places a lot of bullish power in Optionable.
For one, NMX sees potential in OPBL’s business model; its recent significant investment means they expect a lot of growth for OPBL in the future. We could also speculate that NMX may even eventually completely buyout Optionable in the future as its role on the NMX trading floor expands, which would result in a large rally for Optionable's share price. It is also likely that we will see OPBL making the move to a major exchange as its growth expands, especially considering that it is now partially owned by an $11.74 billion company.
Optionable has also had some speculative PR’s in the recent weeks, highlighted below:
Optionable Announces Acquisition of HQ Trading
Monday March 26, 9:39 am ET.
“Optionable CEO Kevin Cassidy said, "The HQ Trading team is extremely well- respected in the industry and this acquisition extends our client base as well as providing us a critical mass entry in the crude oil options market."
Peter Holmquist, owner of HQ Trading said:
We are excited to join forces with the Optionable organization and grow the crude oil brokerage segment of the business. Optionable leads other energy brokerage firms with its bold agility in delivering services, either through OPEX, the NYMEX floor, or voice-brokerage. Additionally, OPEX will propel Optionable as the market leader in technology-based commodity derivatives trading.
Optionable Announces Growth Initiatives
Thursday March 15, 4:05 pm ET
The purchase of these trading rights [two membership seats on the NYMEX trading floor] is part of an overall strategy to expand our NYMEX floor operations as well as expand our product line both on the exchange and OTC," Cassidy said. "We believe this is a wise decision at this point because the cost savings over leasing the trading right will be substantial. Also, and very importantly, we will no longer be subject to increasing lease rate changes.
The Company also said that it has signed participation agreements with 30 new users for its OPEX trading platform since the beginning of the year, all with blue-chip clients, and that requests for the use of the software are increasing. OTC-cleared trades that are executed are cleared through the award-winning NYMEX Clearport.
OPBL's financial condition is also looking very attractive with total assets growing nearly 4x's over the last 4 reported quarters and total liabilities only doubling, setting OPBL's current ratio at an attractive 3.4, compared to the industry average of 2.3. Generally, when a company's assets are double that of their liabilities, in other words, when their current ratio is 2.0 +, then the company is considered to have short term financial strength and the ability to meet its short term obligations. On top of their short term financial strength, OPBL carries no long term debt so fundamentally OPBL is looking very healthy and set for future growth in eps/share price.
OPBL has made an astonishing run up as high as 1200% in a little over 6.5 months, a very momentous trend. Recently, after the price hit its all time high of 9.10 in late Feb, OPBL has retraced in a short term downtrend to retest support near $5/share, which is when I began looking for a position. Judging by the chart, and the fact that I am a technical analyst at heart, it appeared Optionable was in the works of a bearish head and shoulders pattern with a chart confirmation on a breakdown of $5/share, so I held off for entry until I received further confirmation of a bullish reversal.
After riding support for around a week on the 50ema and right shoulder of the bearish H&S pattern, on 4/05/07 we had a very bullish white marubozu candle stick breaking out of the descending bearish channel as well busting through short term horizontal resistance at 6.88. The breakout from this descending channel, as well as breaching the highs of the right shoulder of the bearish head and shoulders pattern, indicates a failure of the H & S pattern and a confirmation of a continuation of a bullish reversal. Today’s candle stick is a bearish shooting star so it is expected that there could be some short term consolidation before any continuation of the bullish trend continues.
For profit targets, $9/share will be an attractive area since it will be a struggle to breakout as 9.10 is OPBL’s all history high; I imagine there will be a battle near $9 with short term traders taking profits on the swing near this heavy resistance area. Considering OPBL’s growth prospects and NYMEX’s stake in the company, prices above $9.10 in the near future are certainly not out of the question.
Disclosure: I have a position in OPBL.OB at 6.85