Summary
- This investment choice is based on both fundamentals and market judgment that investors have favorable odds to see 20+% gains in the next few months from the stock’s ownership.
- How do we believe that can happen? Smart money is betting that it will. Not only do market-active institutional investor-buyers expect continued recovery, but speculator-insurance providers also see it within limits.
- Today’s MM-hedging induced 20% upside price forecast has the same Reward-Risk balance where prior forecasts produced near-20% gains in average two-month and a week holding periods.
- Tests of Bill.com’s prior outcomes of as-seen-today forecasts for how big, how sure, and how soon net benefits may recover appear substantially more likely than average for over 3,200 equity alternatives.
- Alternatives presented include those identified by Yahoo Finance as being “similar to” the subject, or stocks which “people also watch” as well as the subject.
The primary focus of this article is near-term capital gain from Bill.com Holdings, Inc. ( BILL ).
Investment Thesis
The trade-commission-free automation progress achieved by securities markets in serving a continuing flow of individual investor internet-order small trades makes it necessary for Market-Makers to have capital at risk while handling the irregular huge-value "institutional" transactions. They protect their at-risk capital endangerment by hedging actions which reflects the coming price range expectations of the stocks involved - virtually all of the actively-traded issues.
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.
Our selection of BILL is established by its currently-attractive stock pricing, reinforced by other Seeking Alpha fundamental-analytical contributors.
Description of Subject Company
Bill.com Holdings, Inc. provides cloud-based software that simplifies, digitizes, and automates back-office financial operations for small and midsize businesses worldwide. The company provides software-as-a-service, cloud-based payments, and spend management products, which allow users to automate accounts payable and accounts receivable transactions, as well as enable users to connect with their suppliers and/or customers to do business, eliminate expense reports, manage cash flows, and improve office efficiency. It also offers onboarding implementation support, and ongoing support and training services. The company serves accounting firms, financial institutions, and software companies. Bill.com Holdings, Inc. was incorporated in 2006 and is headquartered in San Jose, California."
Source: Yahoo Finance
Yahoo Finance
Risk~Reward Comparisons of Portfolio Alternative Investment Candidates
Figure 1
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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 BILL at location [6] near the right-hand margin. A "market index" norm of reward~risk tradeoffs is offered by SPDR S&P500 index ETF at [16]. Best-located issues in Figure 1 are in directions down and to the right, like [6].
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 best 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
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 numerals are negative, usually undesirable to "long" holding positions. Table cells with 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 BILL.
Figure 2's purpose is to attempt universally comparable measures, 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 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. An average of 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 and 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 preferences. Figure 2 is row-ranked on [R] among candidate securities, with BILL yellow-row identified.
Along with the candidate-specific stocks these selection considerations are provided for the averages of over 3,000 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&P500 Index ETF (NYSEARCA: SPY ) as an equity market proxy.
Recent Trends in MM Price-Range Forecasts for BILL
Figure 3
This picture is not a "technical chart" of past prices for TNET. Instead, its vertical lines show the past 6 months of daily price range forecasts of market actions yet to come in the next few months. The only past information there is the heavy dot of the closing stock price on the day of each forecast.
That data splits the price range's opposite forecasts into 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 suggests what may seem "normal" for that stock, in the expectations of its evaluators' eyes. A RI of 23 means the present price of the stock is where three-quarters of the coming price range now considered as reasonable is likely, with only less than a quarter may be encountered to the downside. A good value opportunity, compared to others of its kind.
The Win Odds of 80 tells that a percentage of all prior forecasts in 5 years like today's have seen the stock's price advance above its entry cost, often to its Sell Target.
Conclusion
Among these alternative investments explicitly compared, Bill.com Holdings, Inc. appears to be a logical buy preference now for investors seeking near-term capital gain.
For further details see:
Bill.com: Today's Best Near-Term Cap-Gain Info-Tech Software Services Buy