In Depth Analysis of a Small Cap Stock

BETR With the health food trend in full gear, Amplify Snack Brands, Inc. (BETR) is a perfect stock for one's portfolio. Q1 2016 Earnings showed a "net income increased 71.3% to $8.4 million, or $0.11 per share, compared to $4.9 million, or $0.07 per share a year ago" ("Earnings Reported After the Bell May 2"). Sales were up over 20% compared to the same quarter the year previous and the company slightly beat analysts' expectations.

Growth for the company looks positive with analysts expecting yearly revenues to report a "net income of $.062 per share" ("Earnings Reported After the Bell May 2"). Thus, from January to May 2016, BETR has been on a tear, breaking out of its range bound trading from January to March after the 2015 earnings report. The stock soared from $11 to $16 from mid-March to May with considerable volume buoying the stock over the 2 and a half month period as can be seen from the chart in Fig. 1.

A more macro look at the chart going back to the company's IPO in August of 2015, shows that the stock price opened at $17 and was hammered down to $10 by October. Technicals indicated that it was quickly oversold but lackluster volume kept it from breaking resistance points at $12.50 and after a couple months of trading sideways around $12, the stock sold off again, crashing to new lows at just over $9 in early January 2016. Since then volume began to increase as shorts no doubt began to cover.

The stock rose to $11.50 then was sold off again before recovering nicely by the end of March. Thus, the stock was primed and ready to run and with a good earnings report that beat analysts' expectations, that is exactly what the stock did. Over the past month, the stock has appeared overbought, and a dip from $16 to $14 the first week of May coincided with the retracement of the S&P 500, which bounced back from an atrocious February.

In this sense, the stock has performed along the same trend lines as the S&P. With the S&P now looking like it did just before its implosion back in August of 2015, it may be wise to cover one's position in BETR with a covered put option. However, if one's expectations for the market overall are more optimistic than the writers at Zero Hedge (Durden), a bullish call could be in order.

Either way, BETR offers a small option chain and one could cover one's investment with the purchase of an OCT 16 put option strike price of $15 for $2.55 (the current ask). Implied Volatility is at 59.29%, so one could choose to let the stock cool off before purchasing the put -- and considering the price action of the underlying in the past week, this might be the best idea.

However, if one is feeling uneasy about the possibility of further decline but does not want to sell the investment just yet, the covered put could put one's mind at rest at least until October. Sell in May and go away is the old adage, as Cramer points out -- and while he may question the validity of it, cautious investors should not be too quick to throw caution to the wind (Rutt).

Covered puts for a hundred shares in BETR would cost one an extra $250 but considering the increase from January/February lows, this may be a good option to take in order to lock in gains. With Amplify's acquisition of Boundless Nutrition to its snack brand family, including good-for-you snacks SkinnyPop Popcorn and Paqui Tortilla Chips, BETR looks poised to continue in a stable trajectory over the coming year, barring any meltdowns in the market that have a ripple effect into all stocks, regardless of their debt-to-income ratio.

However, a look at insider sales shows why the company's stock valued tanked right out of the gate. Thomas Ennis dumped 3 million shares in August on the non-open market and 175,000 shares the same day on the open market at an $18 price, taking in more than $3 million on the sale. He was not alone: the same day Andrew Friedman, Director of BETR sold indirectly shares for a profit of $16 million. TA Associates dumped 55 million shares the same day as well.

August 10th was essentially the day the stock was let loose on the public and insiders were getting out ("Insider Transactions"). As perception is everything, it appears that Goldberg has attempted to give the public the impression that insiders are now buying, as he purchased just under 5000 shares on the open market on 14 Mar 2016 for a value of $59,000. This may be reassuring to some but it does not indicate that insiders are desperately buying back shares at the same clip as much larger companies like GM or AAPL are doing.