Looking for a fast profit idea? Give Castlight (CSLT) a shot. The name is getting pummeled and we think a strong trading opportunity is presenting itself.

Source: Castlight Website

The company provides a software-as-a-service platform used for health benefits navigation for employees in the United States. Its platform matches employees to the resources their employers make available to them; managing a condition; and assists them to manage their benefits. The company also offers implementation, user and customer support, and marketplace services. It serves customers in a range of industries, including education, manufacturing, retail, technology, and government.

Take a look at this disaster:

(Click on image to enlarge)

Source: BAD BEAT Investing Chartist

Have a look at the ugly 5-day chart:

(Click on image to enlarge)

Source: BAD BEAT Investing Chartist

The play

Target entry: $1.52-$1.58

Target exit: $1.75+

Stop $1.48

NOTE: This is a moderately high risk-high reward trade. Expect it to close within days max.

Discussion

The name has been hammered. It has been crushed for about a year straight, but a trading opportunity has arisen here for a quick bounce in our opinion based on several technical indicators including an oversold RSI, volume, and the charts. Further, while performance did indeed decline, a 50% shaving of the market cap is excessive in our opinion. 

Financial performance for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 included GAAP total revenue of $35.9 million, representing a decrease of 5%. GAAP gross margin rose to 60.6%, compared to 58.4%. Non-GAAP gross margin also rose to 63.4%, compared to 62.2%. Operating losses also narrowed. GAAP operating loss was $8.6 million, compared to a loss of $14.1 million last year. Non-GAAP operating loss of $2.9 million, compared to $6.9 million. GAAP net loss per basic and diluted share of $0.06, compared to a net loss per basic and diluted share of $0.10 Non-GAAP net loss per basic and diluted share of $0.02, compared to a net loss per basic and diluted share of $0.05. Cash used in operations of $1.8 million, compared to $1.1 million

Total cash, cash equivalents and marketable securities was $63.9 million as of June 30, 2019.

What hit harder was the outlook cut. The company updated its previously-issued 2019 outlook. For the full year 2019, the company now expects:

• GAAP revenue in the range of $140 million to $145 million
• Non-GAAP operating loss in the range of $8 million to $13 million
• Non-GAAP net loss per share of approximately $0.06 to $0.09 based on approximately 145 million to 146 million shares

So this cut hammered the name but the real catalyst was a management change.

Maybe it was needed as the stock fell from $35 to $1.50. OUCH. 

John Doyle has stepped down from his roles as chief executive officer and director. The Castlight board of directors has appointed Maeve O'Meara, formerly executive vice president of product and customer experience, as Castlight's chief executive officer and director, effective immediately. Additionally, Siobhan Nolan Mangini has been promoted to president and will also continue to serve as chief financial officer.

Any time management changes following bad news the market always punishes the name. We have anecdotally noted that 80-85% of the time the stock bounces at least 15% off the lows following a 40% or more decline in one day. Thus, we want to leverage this opportunity following a terrible selloff.