Citrix stock performance: What's going on? - Michael Keen - BrianMadden.com
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Citrix stock performance: What's going on?

Written on Sep 26 2008
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5,917 views, 27 comments


by Michael Keen

Well here's my take.  The common stock that is traded on the NASDAQ has been stuck below $30 for a while now and is having a tough time breaking out of this mini-slump that it's in.  Even all the talk of MSFT being interested, there hasn't been any significant movement in the common shares of the company.  Why?  Because the guys that "make a market" in this issue don't believe there is anything beyond just plain rumors.  Now the article that appeared in the WSJ yesterday (this was actually an online subscriber only article, so I can't put it here)actually stated that the options on CTXS were up significantly.  This is true.  There were 14,000 October 30 calls traded the day before.  This is interesting for sure, but there's more.  That day the stock was up over a dollar and a quarter.  No big deal the tech sector in general was up.  What makes this more interesting of a story is the fact that options on the stock is how some serious money is made.

So what is an option?

I'm sure since most of us in IT have never played the market seriously before (it's just an assumption) let me set the stage here.  An option is a financial instrument that gives the holder the right to buy, not the obligation to buy, some underlying security, in this case CTXS common stock.  So if you buy a call option on CTXS you have the right to buy a specified quantity of that stock at a set price (what is called the strike price) at a time on or before the expiration of that option.  Conversely, a put option gives you the right to sell.  Make sense?

What does this mean for CTXS?

First it means that there are some folks out there who are betting on the stock price to be above $30 a share by expiration (third week in October actually).  It's hard to say what kind of calls these are but my bet here is that these are what we call "Long calls".  Meaning that speculators, traders, experienced investors, etc are buying options for the leverage factor.  They can control more shares with less money.  That's the key right? Leverage.

Does this mean that the company (CTXS, VMW, whomever) is "in play", meaning that they are a target of another company?  Not really.   The third quarter just ended and I'm sure it's speculation (again buy on the rumor and sell on the news) that CTXS will have a good Q3.  On the other hand it could be that CTXS is looking to make an acquisition that would alter the competitive landscape of the industry and that might be looked upon favorably by others.  Lots of what if's here aren't there?

Another interesting point here is that the interest in the Oct 35 calls is much larger than the 30s, so this leaves me to believe that there are some folks out there that are hoping for a big move in the stock in the next few weeks.  

So let's take a look at the "dark side".  The puts.  Remember that a put is the right to sell the stock at a fixed price.  So if the stock price is below the strike price the person profits.  If the stock price is above the strike price at expiration, the option simply expires worthless and the person is only out the money (the premium) paid.

There are some interesting aspects here as well as the interest in the Oct 25s is inching up and the Oct 30s are really moving in price.  Interesting just to see the opposite side of the coin here and how many people are speculating that the stock will be below $25 by the end of October.

Another bullish indicator for a higher stock price is the "short % of float".  It's currently at over 5% of 180 million shares.  What does that mean?  If the stock moves significantly higher those people will have to cover those shorts (meaning buying the stock outright) and hence moving the stock price higher.

So what's my point here?

There are no official papers filed with the SEC (form 13G) that would indicate someone is acquiring a more than 5% stake in the company and not one of the financial news services has picked that up.  Institutions (mutual funds, pension funds, etc) own 90% of the shares outstanding meaning that if someone wanted the company that bad they would have to deal with those folks and that would definitely make the news.  There has been no real significant move in the price of the common stock or any large spikes in the daily volume that would indicate any kind of move is being made to acquire the company.

Would it be interesting if Brian's post came true?  You bet, I'd buy into that company.  Will it come true?  Good question.  In today's tough economic climate, not likely.  Not that it would be an all cash deal (there aren't that many of those done anymore), but it would take a lot more to get it done today.

The end game?  CTXS is not in play in my opinion.  It's just the standard "run of the mill" speculation that happens with hot sector stocks when a quarter ends, nothing more.

Here's my disclaimer again:  I am a seasoned professional (albeit retired from that industry).  I do own long positions in the common stock of CTXS and VMW.  I own options on both sides of the coin as part of a larger strategy to hedge bets and make money with my investments.  I am not recommending nor am I suggesting you buy these companies.  I'm just giving you my two cents on some of the financial news items that have been cropping up in the last couple of weeks.

 

 
 




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Comments

Guest wrote Nice!
on Fri, Sep 26 2008 11:03 PM Link To This Comment
Well put Michael and thanks for the explanation/option.  Much better then "I feel it in my bones" type of analogy.
Guest wrote Tread Lightly
on Sun, Sep 28 2008 6:55 PM Link To This Comment

While it was a good idea to put the disclaimer at the end, still a risky post, especially given that you have personal position in both companies. Informative? Yes, but risky, given your prior experience. Just my two cents...

Michael Keen wrote Re: Tread Lightly
on Sun, Sep 28 2008 8:18 PM Link To This Comment

I agree, but the more I thought I about it, the more I needed to give another perspective on the news/rumors that were floating around.  Much like any other analyst that reports on stock, I too divulge that I do own shares of the companies and that this is just my opinion.  It is up to the specific person to decide for themselves whether I'm right or not.

But thanks for posting.  I thought long and hard about putting this up.

Guest wrote good stuff
on Mon, Sep 29 2008 2:40 AM Link To This Comment
An intelligent piece Michael, and an interesting read.

Thanks,
Lee
Michael Platsis wrote thanks for the great post!
on Mon, Sep 29 2008 4:20 AM Link To This Comment

I have to say I have found this very informative !

Thanks,

Michael

Brian Madden wrote Where do you find the prices of these?
on Mon, Sep 29 2008 11:08 AM Link To This Comment
Is there a website that lists the option prices for the 25s, 30s, 35s, etc.?
Guest wrote Try nasdaq for one - there are many sites tho...
on Mon, Sep 29 2008 3:11 PM Link To This Comment
I'd link you right to the calls/puts on nasdaq but can't post the link.
Guest wrote vmware paying its ex CEO to go away...interesting......
on Mon, Sep 29 2008 4:29 PM Link To This Comment

i thought that since vmware was mentioned in this posting that it was interesting to view this article http://www.msnbc.msn.com/id/26526529/ you can come to your own conclusions as its just information.... thats it and nothing more......

 

 

Guest wrote Re: vmware paying its ex CEO to go away...interesting......
on Mon, Sep 29 2008 8:05 PM Link To This Comment
Srysly dude? You read an msnbc artoc;e thats MS nbc as in Microsoft about VMWare and you believe it? Oi And people wonder why we are in the financial situation we are in.
Michael Keen wrote Re: Where do you find the prices of these?
on Mon, Sep 29 2008 8:51 PM Link To This Comment

hey man...here ya go:  http://finance.yahoo.com/q/op?s=CTXS

Cheers
Michael

Guest wrote Re: vmware paying its ex CEO to go away...interesting......
on Tue, Sep 30 2008 12:21 AM Link To This Comment
Obviously you read way to much in between the lines here amigo.  All I said was that it was interesting to read and that was it. In no place  did I mention I believed it so you ignorantly inferred that I did which makes you appear like a jack ass...Sorry...You might want to invest in yourself and learn to apply the basic concepts of critical thinking before you criticize someone else's statement…it might also help you appear….well….somewhat intelligent….have a nice day!
Brad Moczik wrote Re: vmware paying its ex CEO to go away...interesting......
on Tue, Sep 30 2008 7:02 AM Link To This Comment
The article was reprinted from The Motley Fool.
Michael Keen wrote Michael Keen
on Wed, Oct 1 2008 10:45 AM Link To This Comment

Interesting read.  Although it's not out of the ordinary for companies to pay their executives to leave or after they have left.  What I did find odd was that Diane only got $400K.  As a shareholder I'm cool with that, but that seems awfully low.  I know that Carly Fiorina received over $100million after leaving HP..so what gives?  Good question.  The article points out a few things, but still. There's more to this story I think, but one we may never have.

Thanks for posting this article up

Cheers
Michael

Guest wrote Read the news
on Wed, Oct 1 2008 11:38 AM Link To This Comment

The insiders know what is going on. My prediction is that Citrix Revenues and net income will be below expected projections.

The sales cycle of all the new products Citrix is pushing is 1-3 years. These are major paradigm shifts and major costs for companies. I still do not have a good reason to buy XenServer over VMWare ESX other than Citrix customer loyalty. I still want to see XenDesktop and VDI in mainstream production before we dive in.

The analysts have changed the ratings of Citrix from "Outperform" to just "Perform." This tells us that someone analyzing Citrix thinks Citrix will not meet expectations. The stock price reflects this. It is that simple. If this is true - Citrix may be headed for $20 per share.

The Economy is down and Citrix may be down for now as well.

Michael Keen wrote Re: Read the news
on Wed, Oct 1 2008 1:30 PM Link To This Comment

I agree with parts of your reply for sure.  I agree with your prediction that Citrix rev and net income will be down.  Below analyst expectations?  I don't think so.  I think the analysts that cover this industry and more specifically CTXS, know how things have been going and have adjusted their estimates accordingly.

The point you make about the sales cycle for new products Citrix is pushing as being 1-3 years.  I'm not seeing it.  I'm not seeing XenDesktop, nor Provisioning Server, or any other new product besides XenServer in that range of a sales cycle.  XenDesktop is sparking a lot of interest around Proof-of-Concepts and other pre-production testing.  I have a major banking client that is moving forward with this as we speak.  It's not for everyone (props to Shawn) but where it does make sense it works very well and the sales cycle isn't even close to a year.  I hear a lot of people tell me that same thing about XenServer.  I'll give you that it's hard to beat the 900 lbs gorilla in the room, but they are making a valiant effort.  Give it time.  The interesting thing is that I, and others, are not seeing a real slowdown in IT spending just yet.  Customers are realizing that there are some serious costs to be made in the virtualization space still and they will continue to spend their budget dollars in order to gain those costs (both hard and soft dollar) savings.

From a purely technical analysis of the stock price, I think you will probably see some continued movement in the mid to upper 20s here for a month or so, but strictly looking at the historical technicals of the stock, there is major support at this level (23'ish) and some level of resistance at about 30.  I think this is a mid-30 range stock, but these are tough economic times and everyone is getting pinched.   So I'll maintain my long positions and hedge my bets with the options strategy I outlined above.

Guest wrote I'm delighted ...
on Thu, Oct 2 2008 9:37 AM Link To This Comment
... to see "leverage" used a noun, the way nature intended. :-)
Guest wrote put this
on Thu, Oct 2 2008 11:13 AM Link To This Comment
you should put this in the bullshiit bin. Citrix won't be bought by anyone so stop making up this marketing crap. this website is going so downhill. only Brian (bum chums)briforum fanboys here now. laters
Michael Keen wrote Re: put this
on Thu, Oct 2 2008 3:12 PM Link To This Comment
Did you miss the point of my original post?  I stated point blank that no one is buying Citrix.  You obviously need to read more.
Guest wrote Re: put this
on Thu, Oct 2 2008 3:44 PM Link To This Comment

Michael: Brian: Other contributors:

Don't listen to the peanut gallery.  Your contribution here is appreciated.

These complainers do not have to come to the site and we who do can choose the articles we want to read by the Heading.

Michael Keen wrote Re: put this
on Thu, Oct 2 2008 4:21 PM Link To This Comment
Thanks.  The constructive feedback is welcomed.
Guest wrote re: put this, etc..
on Thu, Oct 2 2008 8:58 PM Link To This Comment

the reason these types of comments crop up is that this site is so littered with bs, crap, fluff, etc.. it's lost it's way.. time to find the next bmadden site.... it's too really too bad.

Mark Colburn wrote for Citrix gurus who would be investors...
on Sun, Oct 12 2008 12:07 AM Link To This Comment

I don't invest in companies that are highly correlated to my career.  When my business slows down, the last thing I need is a crash in my investments. 

Michael Keen wrote Re: for Citrix gurus who would be investors...
on Sun, Oct 12 2008 8:02 AM Link To This Comment

Mark,

I think because you are so close to this industry it makes more sense.  The great Peter Lynch along with Warren Buffet have always said "buy what you know and what you like".  For instance, Lynch's saying was that if you like McDonald's, buy McDonald's.  If you shop at Wal-Mart, but Wal-Mart.  It's what you know and you can see.

Hence, you and I both work in this industry to where we can see firsthand what Citrix and VMware, Microsoft, Google, etc etc are doing and how they are impacting business.

just my thoughts.  It's not for everyone.

Mark Colburn wrote Re: for Citrix gurus who would be investors...
on Sun, Oct 12 2008 1:03 PM Link To This Comment

I've heard this as well, but "liking something" or "knowing about it" is different than having your pimary source of income correllated to it. I agree that you should buy what you know...but not to the point where you add unnecessary risk.  I love this technology and I think they have a bright future... but I've already invested my career path in that belief. My money goes elsewhere. 

Mark

Michael Keen wrote Re: for Citrix gurus who would be investors...
on Sun, Oct 12 2008 2:27 PM Link To This Comment

and there is nothing wrong with that Mark.  Thanks for chiming in...

Cheers

Guest wrote Stay in your element
on Wed, Oct 15 2008 7:53 AM Link To This Comment

This is a great website, so please don't take this post as someone who's just looking to slam Brian Madden.  However, tThe stock market is not a casino, and the fact that people are now talking about hedging strategies to protect their positions is proposterous.  I would advise that individuals stick to allowing financial professionals manage their money; if you're looking to gamble its way more fun to go to Vegas. 

The stock market (or the bond and options markets for that matter) is not a casino, and this post is as outrageous as if Michael were giving people medical advice.

Guest wrote Re: Stay in your element
on Tue, Oct 21 2008 3:10 PM Link To This Comment
Because financial professionals did such a good job of predicting this downturn and managing everyone's 401ks and stock portfolios? Oh, wait...they didn't, did they?

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