Despite early-week wobbles on inflation worries, the market again held its ground and in fact advanced as the week wore on. By week’s end the S&P 500 had gained 1.5%, the Dow had risen by 0.5%, and the Nasdaq had added 2.6%.
The Stock – Confluent (CFLT)
Confluent is a database developer that focuses on data flow rather than the traditional approach of siloed data that typically keeps data used by operations and data used by analytics separated. Confluent makes data flow more like a central nervous system, allowing corporations’ disparate systems to access and synchronize data sets quickly.
In the age of AI, near-instantaneous speed of data distribution is deemed essential to provide what the firms dramatically term “a single source of truth,” meaning every application is using the same, most up-to-date information. As an example, a global rideshare service uses Confluent’s Tableflow application, which stores data in a more open architecture linked to multiple processors, to make sure pricing, departure and arrival times are accurate worldwide, like for when a customer service rep is located on a different continent than the customer.
The company’s platform has a series of other products that restructure data automatically, often eliminating the need for a person to assist the process, and to hold data in ways that make it much faster to access, reducing clients’ operational complexity and providing a good return on investment over time.
Confluent still has a legacy, on-premise offering that’s doing well, though the faster growth is in its cloud business that takes care of everything for its 5,800 clients (including 1,381 that spend at least $100k annually with the company). In Q4, total sales lifted 23%, though the cloud business (53% of sales) was up 38%, with earnings remaining in the black despite the fact that margins did tick down a bit. Growth has slowed a bit as the business has gotten bigger, but the tailwinds of AI, along with the longer-term trend toward cloud operations by customers, should result in solid 20%-plus top-line and faster earnings and cash flow growth in 2025 and beyond.
Technical Analysis
CFLT has had solid growth and a good story for the past couple of years, but the stock has simply gyrated sideways since the summer of 2023 (check out the nearly flat 40-week line in the weekly chart below). However, shares showed some bullish action starting in October (up eight weeks in a row), and the recent dip, while tedious, was far less intense than those seen during the past two years. And now, after earnings, CFLT is attacking the high end of the range on excellent volume. Stop – 30.5
The Covered Call Trade
Buy Confluent (CFLT) Stock at 35, Sell to Open March 35 Strike Calls (exp. 3/21) for $1.50, or a Net Price of 33.5 or less
Static Return: $150 per covered call (4.47%)
Breakeven: 33.5
Covered Call Return (if assigned): $150 per covered call (4.47%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the approximate Net Price, or 33.5 or less. (In this case 35 minus 1.50 = 33.5. Or another example is you could pay 34.5 for the stock and sell the call for 1, which also equals 33.5)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Rubrik (RBRK) | 65 | 76.5 | 56 | February 70 -- $3 | $6.50 |
| Robinhood (HOOD) | 42.75 | 61 | 33.5 | February 42 -- $4.75 | $19.00 |
| Cloudflare (NET) | 121.15 | 165 | 107 | February 120 -- $8.50 | $45.00 |
| Guardant Health (GH) | 47.4 | 49 | 36.5 | February 50 -- $2.40 | $2.00 |
| Shopify (SHOP) | 119.5 | 127 | 104 | March 120 -- $10.50 | $10.00 |
| Affirm (AFRM) | 77.6 | 80 | 62 | March 75 -- $7.80 | $8.00 |
The next Cabot Profit Booster issue will be published on February 25, 2025.
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