Procore Technologies (PCOR) had the 10th highest Vol/OI ratio for call options in Wednesday trading. Including put options, its ratio was 15th highest out of 1254 unusually active options.
My wife runs a small construction company, so I was immediately drawn to PCOR stock. It is a company that I’d consider owning for the long haul. While I don’t follow it too closely, I have kept tabs on it since it went public at $67 in May 2021.
Its shares are up about 10% in the 3.5 years since. That’s not great.
Not only will I examine the business’s performance more closely, but I’ll also propose a trifecta of bets for anyone who believes its best days are still ahead.
Procore’s Unusual Options Activity
Procore’s options volume yesterday was 21,240, nearly 10x higher than its 30-day average volume of 2,115. It is the company’s highest options volume in the past two years, more than double the next highest day on Aug. 2, 2024, of 9,065.
The call option in question was the Dec. 20 $80 strike price.
The volume of 17,262 was 81% of the total in Wednesday’s trading. Of the 17,262, there were three trades of 1,000 or more contracts for the $80 call expiring in 37 days.
The first trade of the day got a sweet deal at $1, or just 1.4% of the $72.09 share price and 1.25% of the $80 strike. The two later trades were 55-60% more expensive but still 2.2% of the share price or less.
These three trades accounted for 55% of the call’s action yesterday and 45% overall.
Somebody had a hunch. What could it be?
Procore’s Earnings Were Good
Procore reported its Q3 2024 results on Oct. 30 before the markets opened. They were reasonably good. Although its shares initially dropped, they have gained 14% in the 12 days of trading since—that’s more than a percent a day.
Its revenue in the quarter was $296 million, about $8 million higher than the Wall Street estimate. On the bottom line, its adjusted earnings per share were 24 cents, two cents higher than the consensus. Meanwhile, its gross margin was 81.4%, flat compared to a year ago, while its operating margin was -12.3%, 800 basis points better than Q3 2023.
The stock initially dropped because Procore’s Q4 2024 guidance was $297 million, $4 million below analyst expectations but 14% higher than in last year’s final quarter of 2023.
There are two concerns for investors looking at its stock for the first time.
First, its Q4 2024 growth rate is half what it was last year—14% compared to 29%—so there’s some concern that business is drying up. For all of 2025, it expects 11% revenue growth.
While that might be concerning, consider that it will generate $$1.28 billion in sales next year, 3x its sales in 2020. Some sales degradation is to be expected as it matures.
The second concern is profitability. Through the first nine months of 2024, it lost $70.2 million from operations. It will be over $100 million for the entire year. The good news is that it is more than 50% lower than in 2023.
Further, it expects its non-GAAP operating margin in 2o24 to be 10.75% at the midpoint of its guidance and 225 basis points higher in 2025, to 13.0%. In 2023, it was 2.0%.
Significantly, it is growing its customers who spend $100,000 or more annually by over 18% per quarter, and its free cash flow margin is 15.0% and rising.
Procore’s enterprise value is $10.18 billion, 8.1x its trailing 12-month revenue. That’s at or near the lowest EV/revenue multiple since going public.
It’s worth owning.
The Trifecta of Bets
I’ve been developing a system for buying good stocks for the long haul with call and put options to generate income, not for income’s sake, but to provide better prices for future buying and selling of those stocks.
It is definitely a work in progress. So, as the saying goes, don’t try this at home unless you’re a trained professional—enough of my lame humor.
Unless you’re an eternal optimist, you’re probably aware that stocks are currently or approaching nosebleed valuations.
“I feel sorry for Donald Trump because, just like George W. Bush in 2000, he is coming into the office at the peak of a massive price bubble in the equity market. Whether you look at valuations in terms of price-to-earnings, price-to-sales, price-to-book, the smoothed CAPE or the Buffett indicator, the S&P 500 is simply off the charts,” Canadian economist David Rosenberg wrote in his latest opinion piece in the Globe and Mail.
Under my system, you would buy 100 Procore shares at current prices—$72.22 as I write this a little over an hour into Thursday trading—and sell one call and one put. The call strike would be approximately double the current price, while the put strike would be 20-25% lower than where it currently trades.
So, that’s $140-$150 for the call strike and $54-$58 for the put strike.
With Procore’s options availability, that’s a non-starter. The highest call strike available is $120 for the Dec. 20 expiration. Only two contracts are open, and no bids have been received. The $55 and $60 puts with the same expiration both have open interest, with a bid of $0.25 on the $60.
This is where the $80 call from yesterday comes in. It has the same expiration date of Dec. 20.
So, you sell the Dec. 20 $80 call for $1.25 premium income and the Dec. 20 $60 put for $0.25 premium income.
Under this situation, you must buy 100 shares if the price falls below $60 at expiration in 37 days and sell 100 at $80. If the share price stays between $60 and $80, you pocket $150, an annualized yield of 20%.
The goal is to gain better entry points on the downside while automating the sale of stock that’s run up on the upside.
Like I said, it’s a work in progress.
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