AI software company C3.ai (AI) is down 23% over the past year as the early stage company has struggled to move to profitability. One trader is betting on a move higher in shares over the coming months.
That’s based on the June $25 calls. With 91 days until expiration, 37,044 contracts traded compared to a prior open interest of 394, for a 94-fold rise in volume on the trade. The buyer of the calls paid $2.40 to make the bullish bet.
C3.ai shares recently traded for about $23, so the stock would need to rise by $2, or about 9%, for the option to move in-the-money. The strike price of the option is well below the 52-week high of $45.08.
Although C3.ai grew revenues by 26% over the past 12 months, it still lost nearly $300 million overall last year.
Without earnings to rely on for valuation, the company’s EV/EBIDTA of 6 indicates that there may be some value here. That’s because many private equity firms consider an EV/EBITDA multiple of 10 as a fair value to acquire an entire company.
Action to take: Shares are oversold in the short-term and starting to trend higher. If the headlines turn bullish toward the AI space again, C3.ai could look to retest their old highs.
For traders, the June $25 calls are well priced for a quick move higher in the coming months. Traders can likely see high double-digit returns depending on how quickly shares jump higher.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
