Options Traders May be Placing Contrarian Bets on Outfront Media (OUT)

Contrarian bets by their nature are incredibly risky propositions. Basically, if you believe in the random walk theory of market dynamics, then your target security has priced in all publicly available information. Stated differently, there are no bullish or bearish cycles – the security is priced exactly what it should be.

However, a common criticism of this framework is that with so many tradeable opportunities available, it’s difficult (if not impossible) to properly assess each one. Further, if the most affluent investors – those who enjoy the most resources and access to the best information – are moving against the grain of groupthink, that might tip observant retail investors toward a compelling prospect.

That might be the case with Outfront Media (OUT).

There aren’t too many ideas that are more contrarian than OUT stock. Per Barchart’s Key Statistics page, Outfront Media “is a leading provider of OOH advertisement space in key markets throughout the United States and Canada. With billboard and transit displays, the company provides advertising structures and sites to diverse industries across” the U.S. and Canada.

You can see the problem right away. Take a look outside and chances are, people are likely to have their faces buried in their smartphones than interacting with real people and objects. That doesn’t seem like a great selling point for OUT stock.

Further, data from IBIS World points out that the billboard and outdoor advertising industry in the U.S. “declined 3.2% per year on average between 2018 and 2023.” If that wasn’t enough, analysts cite high growth risks and high competition as headwinds impacting the domestic industry.

Still, money talks (and something else walks). And with the smart money apparently sensing an upside opportunity in OUT stock, it’s worth at least sniffing around.

Unusual Options Screener Puts Spotlight on OUT Stock

Following the close of the April 26 session, OUT stock represented the most aberrant transaction in Barchart’s screener for unusual stock options volume. This screener shows which ideas have attracted derivative market traders, which could be an indication of major inflows.

On Friday, total volume reached 5,043 contracts against an open interest reading of 4,330. This metric represented a 1,506.05% lift from the trailing one-month average volume figure. Breaking down the details, call volume hit 3,041 contracts while put volume came out to 2,002 contracts. On paper, this pairing yielded a put/call volume ratio of 0.66.

Generally speaking, the aforementioned ratio isn’t that remarkable. Because the stock market features an upward bias, the average ratio for blue-chip securities comes out to around 0.7. However, the options flow screener for OUT stock – which focuses exclusively on big block transactions likely placed by institutions – reveals an intriguing takeaway.

For options trades that featured bearish sentiment, the biggest premium was for $10,000, associated with sold $14 calls that expire on June 21 of this year. On the other hand, for options trades that featured bullish sentiment, the biggest premium was for $110,000, tied to $16 calls that expire on May 17.

In the open market, OUT stock gained 2.54%, closing at $15.73. Since the start of the year, shares gained more than 11% – not bad for a company supposedly in an industry suffering from fading relevance.

Now, based on the Barchart Technical Opinion indicator, OUT stock could continue moving higher. Presently, the underlying algorithm rates shares an 88% buy, noting a “Strongest short term outlook on maintaining the current direction.”

What’s also interesting is that OUT stock enjoys a moderate buy consensus view among analysts. Moreover, the high-side price target calls for $18, implying over 14% upside potential. No, it’s not the most robust return. But keep in mind that with the $16 calls, OUT doesn’t need to move much for the option to be in the money.

Could Outfront Media Be a Long-Term Investment?

Given the unusual options volume combined with the options flow data, the framework points to a strong possibility that major speculators are hoping for a short-term profit scalping of OUT stock. However, could Outfront Media also double up as a long-term investment?

I think that’s a trickier matter but it’s not unreasonable to believe this. First, the global billboard and outdoor advertising market – which reached a valuation of $32.22 billion in 2022 – could expand at a compound annual growth rate of 7.9% from 2023 to 2030. If so, the industry could eventually be worth $59.24 billion. Shifting social trends – such as a return to the office – could turn the domestic sector toward a positive trajectory.

What’s more, Outfront itself has been steadily growing its revenue since the fallout of 2020. Analysts also expect slow and steady growth for this year and the next. So, OUT’s revenue multiple of 1.41X is lower than its sector sales multiple of 4.74X (which is specialty-focused real estate investment trusts).

Granted, it’s a risky idea and should be treated more as a short-term wager. However, it’s not out of the question to view OUT stock as a longer-term investment.