Munny Tree Trade Alert: 5/22/24

New Buy Position

Author

Adam Michalewicz
May 22, 2024

New Buy Alert

We are entering into a new position today that we see a lot of potential in for the next few weeks. See the details below:

Ticker: LFST

Name: Lifestance Health Group

Entry Price Range: under $6.25 (our entry price was $6.10)

Portfolio Allocation: 8% of our portfolio is allocated to this position

  • As a reminder, we allocate our positions evenly. We currently have 12 positions so LFST is 8%. If we add more positions, this will become diluted to a smaller portion of the portfolio

Warning: This is a riskier position than our normal trades but we see relatively short-term upside we hope to capture. Lifestance announced a secondary public offering of up to 20M share. These are shares are owned by large shareholders that they are selling to the public at $6.25. This caused the share price to fall today by 20% to as low as $6. This price was set a while ago before the rally of the past few weeks.

If you feel this doesn’t fit your risk profile please skip this trade.

Why we like it:

  • Recent Earning: they recently reported a solid upside on earnings

  • New shares may not be dilutive: the offering of 20M shares is only 6% of the total shares outstanding. This potentially might not even be dilutive since these shares already exist vs new shares being offered

  • Price due to offering: The price is set at the offering price. At our entry of $6.05 we’ve almost certainly locked in a minimum ~3% gain. Since the offering is at $6.25 the price should come up to at least that level. But we expect the price to climb back up close to $7 which could give us a 10-20% gain. The offering will happen on Friday 5/24 so the price will likely not change much until Monday.

  • Upside Potential: Before this secondary offering Lifestance was hovering around $7.50. Getting back to that level would be a 20-25% gain. If the shares are dilutive by 6% that puts our price target at $7.05, which would be a 15%+ gain. Nothing about the business has changed so we believe this is an opportunity to take advantage of a market pricing mismatch.

  • Options Pricing Signals Upside: Call Options at the money are pricing this stock at $6.80 at expiration 4 weeks from now on 6/21. That is an 11% potential gain.