Elastic: Rolling Up And Forward

Summary

• I initially valued Elastic at $95 in September using a DCF model and recommended a covered Call strategy due to slight bullishness.
• Elastic's stock appreciated to $104.9, leading to a potential 20.3% ROI in 6 months from my covered Call, though a higher strike could have yielded 35%.
• Elastic's strong economic moat in Search and moderate moats in Security and Observability support its valuation, despite challenges in passing the Rule of 40.
• Rolling up and forward the Call option can increase maximum ROI to 41.66% in one year, with slightly higher risk from a new break-even at $70.59.

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Article Thesis

I wrote about Elastic (NYSE:ESTC), the leader of search engines for applications, in September last year, when the stock was at about $76.40. Based on a DCF (Discounted Cash Flow) model, and backed by a comparison with peers, I estimated

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ESTC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.