The Morning Trade - Weds, Nov. 18

Amazon's foray into pharma is bad news for GoodRx (Nasdaq: GDRX)
Gregory BergmanNov 18,2020,16:47

Limitlessly ambitious Amazon (Nasdaq: AMZN) scared investors in a host of pharmaceutical companies when the tech giant announced that it was moving into the pharmaceutical business. The prescription drug business might never be the same, as Amazon plans to offer its gigantic and ever-expanding Amazon Prime customer base discounts on pharmaceuticals when paying without insurance. Prime members will also get two-day free delivery as with every other product. This could be the most disruptive event on the customer side of the pharma business in decades. One company GoodRx (Nasdaq: GDRX) saw its stock plummet 20% yesterday and more than 6% this morning in New York.

Bad for GoodRx, Good for Short Sellers

In Amazon's new program, uninsured Prime members will also be able to do in-person pick up from more than 50,000 brick-and-mortar pharmacies--just in case you can't wait the two days. This program could cut into the meat of GoodRx's business. GoodRx Holdings, which went public in September, saw its stock rise above $49 per share. the company is a digital offers a free-to-use website and mobile app that tracks prescription drug prices and provides free drug coupons and discounts on medicines. Checking with more than 75,000 cooperating pharmacies in the U.S., it is a great business model. Or was. But now investors are asking themselves if Amazon won't be able to poach many of GoodRx's customers long-term. Short-term, investors have a hard time accepting the pre-Amazon announcement valuation of about 29 times estimated fiscal year 2020 sales.

On the news, Deutsche Bank maintained GoodRx Holdings (NASDAQ: GDRX) with a Hold and lowers the price target from $50 to $31. As of 11:30 am EST, the stock trades at a little under $34 per share.

The Put Play

I am looking at two put options to buy:

1)$35 Put

Expiration date: Nov. 20

Breakeven: $33.15 per share

Cost: $1.85

2) $25 Put

Expiration date: Dec. 18

Breakeven: $24.30

Cost: 70 Cents

I prefer the second option. At a 70 cent premium, I think the stock will be worth owning at that price, should you be in the money and choose to exercise.

Topics:goodRX, AMazon