Vertiv Holdings (VRT) is trading at $236.26 in the middle of today's session. Over the past three months, the stock has shown a downward trend, despite strong free cash flow (FCF) results in the second quarter.
Purchase of High Strike Call Options
Institutional investors have purchased a large volume of out-of-the-money call options for Vertiv Holdings, which expire in nearly 16 months. These trades represent a significant bet on the growth of the company's artificial intelligence data center business. The options have been registered with a strike price of $380, which is over 60% higher than the current price. Additionally, the premium paid was $35.75, and the breakeven point reaches $415.75, meaning 76% higher than today's price.
Read more: Beta Bionics Launches $150 Million IPO at $17.25 per Share
Why Do Investors Trust VRT?
Vertiv directly benefits from high demand for data center construction and significant investments in this sector. The company's equipment helps reduce operating costs, including cooling expenses, in large data centers. For this reason, management forecasts strong revenue growth, and the company generates high free cash flow (FCF) margins. In the past quarter, the company's revenue increased by 24% compared to last year, and FCF also grew by 234%.
Moreover, the company's FCF margin was 28.3% of revenue, and analysts have higher revenue forecasts for the next two years. For example, a survey of 28 analysts indicates that the company's sales will reach $14.02 billion this year and $18.18 billion by 2027.
If this trend continues, if the company's sales reach $20 billion by 2028 and the FCF margin remains at 28%, FCF is expected to reach $5.32 billion. Given that the market values this FCF at a 3.0% multiple, the fair market value (FMV) of the company would exceed $177 billion, which is 94% higher than the current market value of $91.4 billion.
Read more: Coinbase Revenue Drop and 18% Stock Increase
