This Options Play Could Turn That Frown Upside Down

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This options play might just make you smile.

Evolus, Inc. (EOLS)  is small-cap company rapidly taking market share in the growing “aesthetic neurotoxin” space — a.k.a. injectable wrinkle removers — with an injectable product called Jeuveau. Launched some three years ago to provide the temporary removal of frown lines between the eyebrows, Jeuveau is much like industry leader Botox. 

Jeuveau continues to deliver impressive growth. In its most recent quarter, revenues rose by more than 40% to $37.2 million and the product has a strong reorder rate.

Evolus is in the process of launching the European version of Jeuveau in England and Germany this quarter. Additional European countries as well as Australia are scheduled to be brought online in 2023. The company also has an enhanced product in mid-stage development that would provide the first multi-strength neurotoxin in this market.

The stock has seen its first insider buying of the year here in September as two directors bought 30,000 shares in aggregate last week, which is always a nice vote of confidence. The company ended the first half of 2022 with approximately $85 million of cash and marketable securities on its balance sheet. It should have enough liquidity to move the company to cash flow breakeven status without the need for a dilutive capital raise.

Several analyst firms were impressed by the company’s recent second quarter and reissued “Buy” ratings on the stock. The price targets on the stock are in the mid-to-high teens. The equity currently trades right around ten bucks a share. The company should lose a buck a share in fiscal 2022, even as revenues rise some 50%. However, next year that loss is projected to be cut by more than 80%. The company should break even or post a profit in fiscal 2024.

All in all, the company is headed in the right direction. I like Evolus as a standalone entity, but the firm could have attraction as a ‘bolt on’ acquisition to a larger player. All in all, the risk/reward profile on the name looks solid. And given the current option premiums, the stock sets up nicely for a covered call trade.

Option Strategy:

Here is how one can initiate a position in EOLS via a covered call strategy. Using the April $10 call strikes, fashion a covered call order with a net debit in the $7.60 to $7.80 a share range (net stock price – option premium). This strategy provides nearly 25% of downside protection and some 30% of upside potential even if the stock just trades sideways over the next seven months.

(Please note that due to factors including low market capitalization and/or insufficient public float, we consider EOLS to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)