EOT Trade Alert – August 25, 2010

| August 25, 2010

August 25, 2010

Trade Alert:

   Buy PEGA March 2011 $25.00 Calls at $2.25 or better

Company Background:

Pegasystems (PEGA) develops and licenses software to manage complex business processes.  Companies combine the business process management (BPM) software and the business rules engine (BRE) to automate decision making.

Short-Term Catalyst:

You might remember this company from last year.  We raked in a 365% gain on our trade… Let’s see if we can do even better…

According to FORTUNE magazine, Pegasystems is the 8th fastest growing public company in the world.  And we have an opportunity to grab PEGA at a huge discount right now.

Simply stated, no other factor drives stock prices to new heights like revenue and earnings growth.

Here’s the deal…

Pegasystems has gotten pounded by investors lately.  The stock’s been nearly cut in half since April.  I think the sell off is way overdone.

The main catalyst for the decline was their latest quarterly earnings.  But investors are missing the big picture.

Here’s why…

PEGA just posted a record $82.2 million in revenue last quarter.  But they’ve also gone on a massive spending spree.  They added more than 350 new employees this year. And they just completed the largest merger in company history.

These two factors drove costs through the roof.  Higher costs derailed earnings growth.  But it’s only temporary.  Costs are expected to come down throughout the second half of the year.

You see, PEGA is gearing up to grow like never before.  And that requires they pony up now to increase their sales and support staff.  They see a huge opportunity.  And they’re doing what needs to be done to take full advantage.

Their sales force is expected to grow market share.  Right now they have around 12% of the BPM market.  And they have their sights set on capturing much more of this growing industry.

Their “Build for Change” technology is a huge success.  Demand from Fortune 500 companies is growing by leaps and bounds.  It allows companies to decrease costs and squeeze more revenue out of existing customers.  It’s the kind of product companies will buy whether the economy is sinking or soaring.

The bottom line is PEGA’s revenue is exploding and earnings growth will return stronger than before.

Let’s grab call options to profit from this amazing growth stock.

Trade Details:

Underlying Stock Symbol: PEGA
Current Bid-Ask Price: $1.70 – $2.00
Option “Buy Up To” Price: $2.25
Break-Even On Stock At Expiration: $27.25
Maximum Risk Per Contract: $225

Exit Strategy:

PEGA is trading at $21.05 per share.  Resistance levels will be at $27.50 and again at $35.  Remember, we want this stock to move higher.  Support levels will be at $16 and $15.  Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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