"Loss
hungers for gain."
-- Christina Nikolov
Rough Currents
by
Christina Nikolov, Founder ChartWatchCentral
Stock/Ticker: Digital River. (DRIV)
Date: May 23, 2003
Opinion: Bearish
Current Price: $18.17
Target Price: $13.30
Commentary:
Over the past 13 months, Digital River (DRIV) soared more than 400% (chart #1). The shares are now within a few points of setting a fresh three-year high (chart #3).Digital River recently announced quarterly earnings of $0.17 per share. That figure exceeded Wall Street's average guess by 30% and is more than eight times the bottom line for the same quarter last year. In the same report, the company boosted revenue and earnings guidance by almost 20% for the full year 2003.
On the heels of the most recent report, five insiders filed to sell approximately 287,302 shares, amounting to almost $4.7 million dollars. Two of the five individuals have a pretty good track records. Jay Kerutis (President) purchased 3,500 shares on the open market on August 21, 2001. Within five months his position appreciated 500%. right before the stock soared (chart #3).
J Paul Thorin (Director) bought 4,000 shares on August 11, 1998 and saw his original $34,000 investment grow to $245,000 within five months. On November 12, 2001, he dumped 3,000 shares before the stock underwent a six month dive that slashed 60% off its market capitalization. Thorin's recent sale of 10,000 shares on May 6th could mean that another decline is on the horizon.
Since the beginning of May, DRIV appears to have been tracing out a head and shoulders top, with the head of the pattern at $19.55 and the shoulders residing near $18.90. The almost horizontal neckline resides near $16.29 (chart #2). The shares are overbought on a weekly and monthly basis. The daily stochastic is currently neutral (chart #2).
Considering the strong historical and projected revenue and earnings growth, there is a chance we could be wrong. Of course that would mean some very savvy insiders would also be wrong. We are betting the insiders know something which has not been made public yet.
Based on our analysis, we expect DRIV to fall to $13.30 over the next few months. And if the recent insider activity is legitimate, there is a good chance the shares could plunge to $8.08 or $6.37 by the end of 2003.
If you are looking for an ideal option to profit from a decline, we suggest the December 20 put (Symbol: DQIXD) and September 15 put (Symbol: DQIUC). These options are currently offered at $4.50 and $1.40 respectively.
Chart(s):
#1) Digital River (DRIV) Thirteen Month Daily Chart
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#2) Digital River (DRIV) Three Month Daily Chart
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#3) Digital River (DRIV) Four Year Weekly Chart
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