- Bahr shares have lost two-thirds of their value since January.
- First quarter results will be announced on May 17th.
- Investors Buy and keep You might consider investing in SE now.
- If you want the tools, data, and content to make the best investment decisions, try InvestingPro+.
Long-term shareholders of Southeast Asian technology company Sea (SA:) (NYSE:) have seen the value of their investment fall about 65% in the past 12 months and 66.2% since the beginning of the year.
For comparison purposes, the e-commerce index is down 40% so far this year. In the same period, the index fell 24.1%.
On October 19, 2021, SE shares crossed $372 and hit a record high. On May 12, we saw a multi-year low forming at $54.06, more than 85% below the all-time high. The market capitalization of the company is currently around $42.2 billion.
Headquartered in Singapore, Sea operates in the digital environment, E-Commerce and electronic financial services. The company is well known in the region thanks to its popular Free Fire mobile game and e-commerce platform Shopee. Through SeaMoney, it also offers digital financial and payments services.
Recent metrics point to the strength of the Shopee app in Singapore and several other countries such as Taiwan, Indonesia, and Brazil. Worldwide, Shopee topped the shopping app category by number of Downloads over the course of 2021.
However, higher interest rates by the Federal Reserve (the Federal Reserve, the US central bank) caused technology stocks to fall in Southeast Asia. The sea is facing strong headwinds as global inflation rates soar and the Covid-19 health shutdown continues to disrupt supply chains, especially in Asia.
How were the modern standards?
Sea released its fourth-quarter and full-year 2021 metrics on March 1. Increase of 106% YoY (YoY) to $3.2 billion.
The digital entertainment segment recorded $1.1 billion in bookings and $1.4 billion in revenue, up 104% year over year. Similarly, the e-commerce sector grew by more than 89% to $1.6 billion. Finally, digital financial services revenue reached $197.5 million, an increase of 711.1%.
Meanwhile, fourth-quarter net loss rose to $483.5 million, or 88 cents a share, compared to a loss of $430.7 million in the previous quarter.
Commenting on the results, CEO Forest Lee stated:
“We expect Shopee to generate positive adjusted EBITDA before allocating headquarters costs in Southeast Asia and Taiwan this year and SeaMoney to generate positive cash flow next year. With this, we believe that by 2025, cash generation will allow Shopee to And SeaMoney together for these two companies substantially fund their long-term growth.
For the full year of 2022, management now expects digital entertainment bookings to be between $2.9 and $3.1 billion. Revenues from e-commerce are expected to range between 8.9 and 9.1 billion USD, and digital financial services between 1.1 and 1.3 billion USD.
Therefore, the first-quarter metrics due May 17 could be crucial for the rest of the year, and the company’s stock volatility should increase when it releases its results.
Before the fourth quarter results were announced, SE shares were trading at around $132, but now, they are trading at $75.40, down more than 40%.
What to expect from SE stock
Among the 26 analysts surveyed by Investing.com, SE stocks are rated “outperform” (above average), with a 12-month price target of $209.79. Such a move would suggest a 178% rise over the current price. The target price is between $400 and $110.
However, according to various valuation models, including multiples of P/E, P/V or terminal values, the average fair price for an SE stake in InvestingPro It is $74.60.
In other words, the fundamental data suggests that the stock could rise about 1% (or stay flat).
As part of the short-term sentiment analysis, it will be important to analyze the levels of implied volatility of SE options. Implied volatility generally shows the market’s opinion of likely movements in an asset, but it does not predict the direction of the movement.
The current implied volatility for SE is 14%, which is above the 20-day moving average. This means that the implied volatility is in an uptrend.
We expect SE shares to consolidate between $65 and $85 in the coming weeks. Then the shares can start a new rally.
Entering the SE into the wallet
Investors that are optimistic about Sea Limited who are not concerned with short-term volatility may consider investing in the paper at current levels. Its price target will be $209.79, according to the target given by analysts.
Alternatively, investors may consider buying an exchange-traded fund (ETF) that has an interest in SE. Among the examples:
- iShares MSCI Singapore (New York Stock Exchange 🙂
- FMQQ Internet and e-commerce frontier following (New York Stock Exchange 🙂
- VanEckVideo Games & Esports (NASDAQ:)
- ARK Fintech Innovation (New York Stock Exchange 🙂
- Roundhill Ball Metaverse (New York Stock Exchange 🙂
Finally, investors who expect SE stock to rise in the coming weeks may consider building a covered call strategy.
Most strategies with options It’s not perfect For most ordinary investors. Therefore, the following discussion of SE procedures should be considered for educational purposes only, and not as a specific strategy followed by the average investor.
Strategy with covered call options on SE stocks
Price at the time of writing: USD 75.40
For every 100 shares held in the portfolio, the strategy requires the trader to sell a call option with an expiration date sometime in the future.
Investors who think there may be more volatility on paper can use the slightly hedged money call options strategy. The call is ‘at the money’ if the market price (here $75.40) is higher than the strike price ($75).
Therefore, the investor will buy (or already own) 100 shares of SE at $75.40 and, at the same time, will buy SE with a strike of 75 on August 19. This option is currently offered at a price (or premium) of $15.90.
The buyer of the option would have to pay $15.90 x 100, or $1,590, as a seller premium. This put option will stop trading on August 19th.
This premium belongs to the writer of the option (seller), regardless of what will happen in the future, for example, on the day of expiration.
The $75 strike offers more downside protection than a cash or out-of-the-money call.
Assuming the investor enters this covered call transaction at a price of $75, at expiration the maximum return will be $1,550. [1590 – 75,40 – 75) x 100]excluding operating costs.
The investor realizes this gain of $1,550 if the price of the SE stock at expiration remains above the call’s strike price (in this case, $75).
At maturity, this transaction will be in equilibrium at $59.5 (i.e. 75.40 – 15.90), excluding operating costs.
On August 19, if the SE closes below $59.50, the trade will start losing money within this covered call setup. Therefore, when the covered call expires, the investor has some protection against potential loss in the event of a decline in the underlying stock. In theory, the stock price could drop to zero.
As we have already indicated in several articles, this covered call will limit the potential for profit in the event of a rally. The risk of not participating in the potential appreciation of SE shares will not be of interest to everyone. But, while respecting the risk profile and return, others may find it acceptable in exchange for the premium received.