Vocera Communications, Inc. - Short Liquidity Trap Leads To New Year Vanna Squeeze - $90
Seeking Alpha Analyst Since 2021
Primary focus on technical arbitrage and directional plays using mathematical indicators and unusual options activity / movements. Principally high-risk, high-return investments. Not affiliated in any way with Ted Cruz.
Summary
- $VCRA (Vocera Communications) sells the “cadillac” of high end wireless communication solutions to hospitals. They're profitable, blowing through projections, and nearly 100% institutionally owned, resulting in massive liquidity issues.
- $VCRA raised FY21 guidance for the THIRD time in Q3 as backlog and deferred revenue grew 16% Q/Q to reach all-time highs. The EBITDA guidance raise implied 130%+ incremental margins.
- They signed their two largest deals ever in the last two quarters including a deal with the Cleveland Clinic.
- End of year short rebalancing presents a unique short term opportunity in this OPTIONABLE (45% Jan IV), stock with an irregularly low float and volume, spiking to all time highs day after day.
Basics
VCRA has attributed their success to increasing deal size and expanding TAMs. Their solutions are currently in 20% of hospitals but many hospitals still run on outdated communications technology giving Vocera huge growth potential. We believe VCRA has significant runway to continue penetrating large hospitals as well as the numerous smaller hospitals and care centers.
Backdrop
VCRA raised their fiscal year (‘21) guidance in 3 of the 3 reported quarters. Their backlogged revenue and deferred revenue grew more than 16% quarter-over-quarter to reach all-time highs. Due to the excess of revenue, their EBITDA guidance was raised to a point it implied a 130% (or more) incremental move in margins. As such, large institutions represent a massive holding in the company's outstanding shares.
For the last 8 years, institutional holdings in VCRA has shown 100% or more, because so many of the firms are long term holders that have no intention of selling. Currently, the 30 biggest funds hold, and have been holding, a little over 31.7 million shares (92% of shares outstanding) for years now. Additionally, there are no warrants or convertible share traps.
Holdings Breakdown
- Shares outstanding: 34.8 million
- Institutional shares held: 31.7 million - 34 million
- Float: 0.8-3 million shares
- Short Interest: 3.5 million (FINRA)
- Short Interest % of Float: 100% or greater
Catalyst
As the end of year approaches, we all know that large funds are doing large fund things, and rebalancing their portfolios. Whether that's due to tax harvesting, gain harvesting, simply reporting positions you're more confident in, or any other reason, who knows. The bottom line is that short positions are looking to close out too, and in a massively institutionally owned company like Vocera, they have limited liquidity to do so.
As retail traders poured into options today, we are seeing the beginnings of a potential vanna squeeze into the new year. Vanna is the change in option delta for a change in implied volatility. Usually it assumes a normalized form so as to show the change in delta for a 1% move in implied volatility. The dramatic increase in derivatives is sure to create hedge inflows. Below is the increased share and options data for December 21, 2021.
The Play
There is next-to-no float available on this stock when you look at institutional holdings versus volume and likely sellers
Short positions are closing, or will close, by end of year, as they rebalance their portfolios, and this position is hitting all time highs day after day
Historical IV on the available options is extremely low while the potential move is high.
Upgrades on VCRA simply have not stopped, after crushing every quarter this year and raising guidance each time, firms simply can't recommend this stock highly enough (Hallum $71 (++), Sandler $68 (++), BTIG $70 (++))
Surprising Shorts - for a company this size, as illiquid as it is, the amount of shares reported short are staggering.
Positions - we are taking advantage of the low IV to capitalize on this opportunity as much as possible, and we have purchased Jan 2022 60c, 65c, and 70c and will enter higher strikes when released.
Analyst's Disclosure: I/we have a beneficial long position in the shares of VCRA either through stock ownership, options, or other derivatives.
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