Bloom Energy (BE) Falls After Reporting
Bloom Energy (BE) was added to the portfolio on the day shares were rallying due to entrance into the commercial hydrogen fuel cell market. That strength lasted a few days, then began to peter out. Yesterday, shares were down double digits after management reported a quarter that beat expectations but neglected to issue forward guidance (the stock did close above the day’s low).
The question is whether or not this is a company we want to keep holding, to buy more of, or to kick to the curb. First, a few comments.
Second quarter results beat expectations and the company’s newest server (generation 7.5) is entering field tests this year. Management is also moving swiftly to expand into new markets of marine and hydrogen over the next two to five years, which more than doubles its addressable market.
The short-term issue is that profit margins have declined because Bloom is selling an “old” technology. Remember, the next gen product is set to move out in the near future and that will refresh profit margins. I think the market is interpreting the declining margin trend as Bloom losing pricing power, not as it is sunsetting an older technology in favor of the newer one. That’s an important distinction. While one can certainly wish the transition happened this quarter and not in the coming ones, the bottom line is that this is more about the cadence of product innovation and not because customers are cancelling or asking for delayed installations (yes, that could happen, but it hasn’t yet).
The bottom line here is the stock selloff seems overdone. Is it a raging buy? I wouldn’t say that. The chart looks pretty awful and I’m not sure this is a great market in which to be searching for beaten down stocks. On the other hand, the future here seems incredibly bright and analysts are generally positive on the name. Upside potential is significant. If you want to average down with a few shares here to lower your cost basis, I think that’s a rational strategy. But after that, sit on the stock and let’s see what happens. If it falls much lower I’ll quickly move from BUY to SELL. BUY
SelectQuote (SLQT) Still Sliding And Moves to HOLD
New IPO SelectQuote (SLQT) continues to look weak, which is likely attributed to some carryover from the lackluster response to Ehealth’s (EHTH) earnings report last week. I’ve already commented on that and said there’s potential for some of Ehealth’s pain translating to gains for SelectQuote, but that it’s difficult to draw a straight line between the two. I have kept SelectQuote at buy until now, but with the stock still looking weak I’m now moving to hold. My preference would be to keep it there until we get to an earnings report (date not yet announced) since that’s the only way to really know what’s going on. This is a new IPO and while we’d like the stock to go up and not down, it’s often the case that IPOs move around a lot before establishing a more consistent trend. HOLD
OneWater (ONEW) Marine Moves To HOLD
OneWater (ONEW) just reported this morning and had a terrific quarter. Revenue was up 49% to $408 million (beating expectations by $95 million) while EPS of $2.36 beat by $1.23. Same-store sales were up 44%, new boat sales jumped 59%, pre-owned boat sales jumped 30%, and finance and insurance income rose 66%. Essentially, the business was cranking as everyone wanted to get out on a boat. That demand seems to be continuing into July.
The big question here is with the pandemic not getting much better and families turning their attention to school and other things, will boating remain a priority? One has to believe priorities will begin to shift somewhat, but at the same time all signs point to families having kids home more than in the past and boating is a great way to keep everyone entertained. Plus, there are a lot of people who want boats that don’t have kids.
In short, this is a bit of a toss-up as the economic picture looks quite bleak, which is typically bad for a company like this, but the likelihood of continued fiscal stimulus and the nature of boating as a fun and engaging method of social distancing are powerful tailwinds. We’ve had OneWater at buy since adding the stock in June and we’re up 15%, despite some selling pressure today. Let’s be a little conservative and move to hold to see how it acts as the market digests the recent earnings report. HOLD
Dynatrace (DT) Remains at HOLD
Dynatrace (DT) reported yesterday and beat on the top and bottom lines. Revenue was up 27% to $156 million while adjusted EPS of $0.13 beat by $0.03. As a refresher, Dynatrace sells cloud-based software that monitors applications and demand for these solutions is soaring. Many customers are beginning to monitor aspects of their IT environment beyond just applications, and this is expanding Dynatrace’s potential market. Management says customer retention is strong, it is winning many bids and selling more solutions to current customers. One potential weakness is that comments on the conference call revealed that the company isn’t adding as many new customers as analysts had hoped. New customer adds in the quarter were around 85, which is roughly half of what many analysts had expected. However, management notes that with the transition to the subscription model largely behind it Dynatrace can now begin to focus on new customer growth. The stock’s reaction has been somewhat muted and shares are consolidating within 10% of the previous high. Keeping at hold. HOLD