Visa was able to mitigate investor fears just like Bridgepoint will. Can Bridgepoint's share price double like Visa's did in less than two years? I would not be surprised, given the fact that Bridgepoint has traded near $28 a share within the last six months. Visa demonstrates that when a company with good fundamentals is facing a "one-off" negative headline you should not panic. It's the epitome of why investors must buy when there is blood in the streets.
Bargain hunters and short sellers covering positions could push the price up quickly in relation to the gap-down price this week. Looking at the chart, I expect short-term resistance near $16 and again at $18. Round numbers often attract like a price magnet and then repel, causing a bounce. Expect a lot of volume to trade near $14 and $15 a share, but also be prepared for bargain hunters to start positions under $14 as an entry.
Bridgepoint doesn't have debt (relative to the cash on hand), and the price-to-earnings ratio is a super bargain. Bridgepoint doesn't pay a dividend, and, with the upcoming wealth destroying dividend tax increase expected to begin in 2013, a dividend isn't a net positive any longer.
The Bridgepoint Play
If you are looking for Monday's drop to signal a buying opportunity, you may find Tuesday or Wednesday offer the best opportunity. There is no hurry jumping on board with Bridgepoint. The markets take time to find value in stocks dumping as a result of this kind of headline news. Watch for the second break above $18 as the one that "sticks."
What's the best play with Bridgepoint? There should be a very attractive trade coming up Tuesday or Wednesday. Near the end of the day, if it's still trading lower, sell out-of-the-money puts. Fear of continued losses tends to push portfolio insurance prices up dramatically, while the stock should bottom at the same time.
I especially like the July $15 strike put at $1.35 or higher in the next couple of days. It's not one to get greedy with; hold on for a few days and, as the implied volatility falls (hopefully with a nice dead cat bounce), exit out with a quick hit-and-run for profits. Otherwise, for longer-term investors, the best play is to wait until after the next earnings release for an entry.
At the time of publication, the author did not hold a position in any stock mentioned
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.