There is no sugarcoating it: last week was ugly for the market as the S&P 500 fell 2.3%, the Dow lost 3.1%, and the Nasdaq declined by another 2.4%. And while the market looks terrible, on a positive note, stocks had their best day of the year on Friday.
The Stock – Rubrik (RBRK)
The cybersecurity market has been in a long-term growth phase for years due to business trends (more work online and remote, everything going digital and in the cloud, etc.) that are only accelerating—but the group has seen leadership shift over time, as those with new-age offerings and new focuses grab share.
We think Rubrik is set up to be the next big draw in the space thanks to its focus on cyber recovery, not just attack prevention (where the vast majority of effort is today)—the fact is that cyberattacks are only becoming more common, with the cost of those attacks skyrocketing, despite advances in protection capabilities. (In other words, bad actors are getting more advanced at the same or quicker pace than cybersecurity firms.)
Rubrik actually integrates with many of the best-known security providers and prevention is a key part of the offering, but recovery efforts are also big, with its platform allowing for a very rapid recovery of data (and therefore slashing the cost of these events) for clients on a variety of clouds (Azure, AWS, etc.) and types of data (including unstructured data, which is becoming more important as Generative AI use ramps up) … and it’s often able to provide this at a lower total cost of ownership for clients.
Not surprisingly, it’s been a huge hit, with just about every key metric and sub-metric growing rapidly, if not accelerating. In the just-reported Q4, Rubrik’s total revenue growth accelerated to 47% while annualized recurring revenue leapt 37% and cloud-based revenue soared 67%. Meanwhile, the top brass says it’s winning most of the deals it’s going after as competitors can’t provide the firm’s depth of cyber resilience and recovery, and current clients are buying more, with same-customer revenue growth north of 20%.
As for earnings, they’re in the red, but free cash flow was positive last year and, most important, management’s recent guidance breezed past estimates. To be fair, growth is expected to decelerate a bit (30% top-line growth this year), but given the size of the recent beats, most see that as overly conservative.
Technical Analysis
RBRK came public in April and went straight sideways before finally getting going in October, embarking on a huge run into December. Shares did chop for a couple of months from there, but they could only make grudging new highs in February before falling sharply (36%) with growth stocks of late. Still, the drop wasn’t all that abnormal, the stock isn’t late stage and the snapback last week (mostly due to Friday’s earnings reaction) was certainly an eye-opener, with RBRK recouping about two-thirds of the decline on volume far higher than what was seen during the dip. Stop – 57
The Covered Call Trade
Buy Rubrik (RBRK) Stock at 70, Sell to Open April 70 Strike Calls (exp. 4/17) for $4, or a Net Price of 66 or less.
Static Return: $400 per covered call (6.06%)
Breakeven: 66
Covered Call Return (if assigned): $400 per covered call (6.06%)
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 66 or less. (In this case 70 minus 4 = 66. Or another example is you could pay 70.5 for the stock and sell the call for 4.50, which also equals 66.)
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 |
| Royalty Pharma (RPRX) | 34 | 33 | 29 | April 35 -- $0.75 | $0.50 |
| Exelixis (EXEL) | 38.25 | 36.5 | 32.5 | April 39 -- $2.20 | $1.00 |
| Uber (UBER) | 72 | 72 | 66 | April 70 -- $5.40 | $4.80 |
The next Cabot Profit Booster issue will be published on March 25, 2025.
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