The new round of tariffs will be painful for some companies. Bitauto Holdings is one of those companies.
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BITA - BitAuto Holdings - Company Description
Bitauto Holdings Limited, through its subsidiaries, provides Internet content and marketing services, and transaction services for the automobile industry in the People's Republic of China. It operates in three segments: Advertising and Subscription Business, Transaction Services Business, and Digital Marketing Solutions Business. The Advertising and Subscription Business segment offers advertising services, including automobile pricing and promotional information, specifications, reviews, and consumer feedback to automakers through its bitauto.com Website and related mobile applications. It also provides transaction-focused online advertisement and promotional services for automakers, automobile dealers, auto finance partners, and insurance companies; and Web-based and mobile-based integrated digital marketing solutions to automobile dealers. The Transaction Services Business segment operates an online automobile retail transaction platform, which provides transaction platform and self-operated financing services. The Digital Marketing Solutions Business segment offers one-stop digital marketing solutions, including Website creation and maintenance, online public relation, online marketing campaign, advertising agency, big data application, and digital image creation services for automakers. The company also distributes its dealer customers' automobile pricing and promotional information through its Internet service provider partners. Bitauto Holdings Limited was founded in 2000 and is headquartered in Beijing, the People's Republic of China. Company description from FinViz.com.
In theory this would be a great play on the long side because the stock is only trading at half its book value. However, auto sales in China are crashing. The company supplies online subscription and marketing services to auto dealers. When car sales are falling those dealers do not have the money to spend on online marketing programs.
The company has been spending a huge amount of money in developing systems and new programs to capitalize on a future rebound in sales but it has not arrived and their cash burn is accelerating.
In the next round of sanctions scheduled to be announced next week there could be a large hit to autos and auto parts. This will raise the price of cars and slow sales even more. Bitauto shares have been crashing since early March and the new tariffs could cause that to accelerate.
Earnings June 18th.
Sell short BITA shares, currently $11.28, stop loss $12.75.
Optional: Buy July $10 Put, currently 70 cents. No stop loss
More than 500 of these were bought on Friday.