CALX - Calix: Now An Odds-On 3-Digit CAGR Cap-Gain Prospect

2023-05-08 05:49:53 ET

Summary

• 84% of Calix shares held by 370 institutions, even more held of float.
• Average daily trading value: $220 million.
• Derivatives hedging activity now forecasts +16% stock price in two months, 5-year history of prior forecasts like today’s actually did far better, 13 of 16 profitable.

The primary focus of this article is Calix, Inc. (CALX)

Investment Thesis

We look to the hedging actions of Market-Makers to protect their at-risk capital endangerment required by the automation achieved by markets in serving a continuing flow of individual investor small trades instead of irregular huge-value "institutional" transactions.

The pricing and structure of such hedges reveal the coming-price expectations of both the MM protection-buyers and that of the MM industry protection-sellers. Better than single-point Price-Earnings ratios they define the currently-expected balance between stock price Risk and Reward in highly comparable terms between significantly different stock investments.

Our selection of Calix, Inc. is prompted by its currently-attractive repeated stock pricing forecast, coupled by a large following of Seeking Alpha readers.

Description of the Subject Company Activities

"Calix, Inc., together with its subsidiaries, provides cloud and software platforms, and systems and services in the United States, rest of Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company's cloud and software platforms, and systems and services enable broadband service providers (BSPs) to provide a range of services. It provides a role-based analytics platform configurable to display role-based insights and enable BSPs to anticipate and target new revenue-generating services and applications through mobile application. It offers its products through its direct sales force and resellers. The company was incorporated in 1999 and is headquartered in San Jose, California."

Source: Yahoo Finance

Source: Yahoo Finance

These growth estimates have been made by and are collected from Wall Street analysts to suggest what conventional methodology currently produces. The typical variations across forecast horizons of different time periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.

CALX travels in a fast-action investment crowd of Information Technology competitors for the attentions of near-term investment satisfaction pursuers. The current hedging of the market-making community for the more prominent such stocks tells the expected price-range Risk and Reward bounds as told in Figure 1.

Risk~Reward Comparisons of Portfolio Investment Candidates

Figure 1

(used with prior permission)

The tradeoffs here are between near-term upside price gains (green horizontal scale) seen worth protecting against by Market-makers with short positions in each of the stocks, and the prior actual price drawdowns experienced during holdings of those stocks (red vertical scale). Both scales are of percent change from zero to 25%.

The intersection of those coordinates by the numbered positions is identified by the stock symbols in the blue field to the right.

The dotted diagonal line marks the points of equal upside price change forecasts derived from Market-Maker [MM] hedging actions and the actual worst-case price drawdowns from positions that could have been taken following prior MM forecasts like today's.

Our principal interest is in CALX at location [3]. A "market index" norm of reward~risk tradeoffs is offered by SPDR S&P 500 index ETF (SPY) at [4] in unusually poor competitive circumstances.

Those forecasts are implied by the self-protective behaviors of MMs who must usually put firm capital at temporary risk to balance buyer and seller interests in helping big-money portfolio managers make volume adjustments to multi-billion-dollar portfolios. The protective actions taken with real-money bets further define daily the extent of likely expected price changes for thousands of stocks and ETFs.

This map is a good starting point, but it can only cover some of the investment characteristics that often should influence an investor's choice of where to put his/her capital to work. The table in Figure 2 covers the above considerations and several others.

Comparing Alternative Investments

Figure 2

(used with permission)

Column headers for Figure 2 define elements for each row stock whose symbol appears at the left in column [A]. The elements are derived or calculated separately for each stock, based on the specifics of its situation and current-day MM price-range forecasts. Data in red numerics are negative, usually undesirable to "long" holding positions. Table cells with pink background "fills" signify conditions typically unacceptable to "buy" recommendations. Yellow fills are of data for the stock of principal interest and of all issues at the ranking column, [R].

Readers familiar with our analysis methods may wish to skip to the next section viewing price range forecast trends for CALX.

Figure 2's purpose is to attempt universally comparable answers, stock by stock, of a) How BIG the price gain payoff may be, b) how LIKELY the payoff will be a profitable experience, c) how SOON it may happen, and d) what price drawdown RISK may be encountered during its holding period.

The price-range forecast limits of columns [B] and [C] get defined by MM hedging actions taken to protect firm capital required to be put at risk of price changes from volume trade orders placed by big-$ "institutional" clients.

[E] measures potential upside risks for MM short positions created to fill such orders, and reward potentials for the buy-side positions so created. Prior forecasts like the present provide a history of relevant price draw-down risks for buyers. The most severe ones actually encountered are in [F], during holding periods in effort to reach [E] gains. Those are where buyers are most likely to accept losses.

[H] tells what proportion of the [L] sample of prior like forecasts have earned gains by either having price reach its [B] target or be above its [D] entry cost at the end of a 3-month max-patience holding period limit. [ I ] gives the net gains-losses of those [L] experiences and [N] suggests how credible [E] may be compared to [ I ].

Further Reward~Risk tradeoffs involve using the [H] odds for gains with the 100 - H loss odds as weights for N-conditioned [E] and for [F], for a combined-return score [Q]. The typical position holding period [J] on [Q] provides a figure of merit [ fom ] ranking measure [R] useful in portfolio position preferencing. Figure 2 is row-ranked on [R] among candidate securities, with CALX yellow-row identified.

Along with the candidate-specific stocks these selection considerations are provided for the averages of over 3000 stocks for which MM price-range forecasts are available today, and 20 of the best-ranked (by fom ) of those forecasts, as well as the forecast for S&P 500 Index ETF as an equity market proxy.

Recent Trends in MM Price-Range Forecasts for CALX

Figure 3

(used with permission)

This picture is not a "technical chart" of past prices for CALX. Instead, it is the past 6 months of weekly price range forecasts of market actions yet to come in the next few months. The only past information there is the closing stock price on the day of each forecast.

That current price data splits the forecast range's expectations into opposite forecasts of upside and downside prospects. Their trends over time provide additional insights into coming potentials, and helps keep perspective on what may be coming.

The small picture at the bottom of Figure 3 is a frequency distribution of the Range Index's appearance daily during the past 5 years of daily forecasts. The Range Index [RI] tells how much the downside of the forecast range occupies of that percentage of the entire range each day, and its frequency distribution suggests what may seem "normal" for that stock, in the expectations of its evaluators' eyes.

Here the present level is near its least frequent, lowest-cost presence, encouraging the acceptance that we are looking at a realistic evaluation for CALX. With nearly all past RIs above than below the present RI there is more room for an even more positive outlook. Of the 16 prior forecasts of 19% downside and 81% upside in the past 5 years' 1261 market days 15 out of 16 either reached their top-of-forecast upside target or were closed at prices above their position entry cost prices by the risk-limiting holding period time limit of 3 months.

Conclusion

Among these alternative investments explicitly compared Calix, Inc. appears to be a logical buy preference now for investors seeking near-term capital gain.

For further details see: