Uber Technologies (UBER) is showing unusually large options volume ahead of its earnings release on Nov. 4 (pre-market). Out-of-the-money (OTM) UBER puts expiring in three weeks and OTM calls expiring in more than a year have traded.
UBER is at $68.17 in midday trading. That’s well off its recent peak of $80.35 on Aug. 25, but very near a recent low of $67.88 on Oct. 1. This is a typical drop ahead of earnings, as the Barchart chart below shows.
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As a result, these unusual options trades may indicate that investors believe that UBER is near a low. They are taking advantage of high premiums by shorting them.
Unusual Options Trading Today
This can be seen in today’s Barchart Unusual Stock Options Activity Report. It shows that 21,000 puts have traded at $58.00, $10 and 15% below today’s price (i.e., “out-of-the-money”) for expiry on Nov. 13. This volume was almost 99 times the prior number of outstanding puts.
In addition, the table above shows that 24,000 calls have traded at the $115 strike price, over 68% above today’s price, but the expiry period is 1.25 years away (15 months) on Jan. 21, 2028.
This heavy out-of-the-money trading might indicate that short-sellers of these puts and calls initiated these trades. In addition, another play could be that an investor intends to short OTM puts each month to pay for an OTM purchase of these long-dated calls.
Either way, it looks like the investors in these puts and calls are essentially bullish on UBER. And why not? The fundamentals show that UBER could be undervalued. Here’s why.
UBER Looks Undervalued
Analysts have significantly higher price targets (PTs) for UBER. For example, Yahoo! Finance’s survey of 50 analysts shows an average PT of $100.86. That’s 48% over today’s price.
Similarly, Barchart’s mean survey PT is $102.38, and AnaChart’s survey of 34 analysts shows an average PT of $105.84. These are 52.7% above today’s price on average.
And why not? The company is generating strong free cash flow (FCF) and high FCF margins. This can be seen on page 31 of its Q2 supplemental info deck (see below).
FCF was $2.792 billion in Q2, and for the past year Uber generated 10.116 billion. Those represented 19.67% and 18.32% of revenue, respectively, according to Stock Analysis. In other words, the company is producing huge amounts of cash. That is likely to continue, as analysts have higher revenue forecasts.
