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Early Opportunities
Get in Before the Crowd

Cabot Early Opportunities Issue: May 17, 2023

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Stocks in This Issue

Stock NameMarket CapPriceInvestment TypeCurrent Rating
Ferrari (RACE) ★ Top Pick ★$53.2 billion293High Growth – Sports CarsBuy
Origin Materials (ORGN)$663 million4.63Early Stage – Green TechWatch
Shopify (SHOP)$76.1 billion60.1High Growth – e-commerceWatch
Si-Bone (SIBN)$876 million24.9High Growth – MedTechBuy 1/2
Tecnoglass (TGLS)$2.23 billion47.8High Growth – Architectural GlassWatch

Back to the Future for Shopify (SHOP)


In this month’s intro, we’re digging into Shopify (SHOP), a company that I’ve been interested in for a while but which just hasn’t looked good enough (or bad enough, depending on the timing) to get involved with.

Now, with a major strategic shift, it just might be time.

We’ll start with some of the backstory right now. Then follow up with current events in the company-specific write-up below.

Here we go…

Whenever a once-beloved tech stock falls from grace then shocks the market with a major strategic shift I tend to take a closer look. That’s the situation with Shopify right now. And it looks pretty darn interesting.

Before we get into what happened, the ultra-short story of what Shopify does. The company is a cloud-based provider of e-commerce solutions, primarily for smaller businesses.

This is a huge market. And Shopify’s platform with front-end website features and back-end support (order management, payments, etc.) has made it easy for companies to get up and running, then grow into much larger organizations with Shopify.

One of the ways Shopify intended to keep these customers growing with the company was to build out a fulfillment network that could eventually make it the direct-to-consumer (DTC) counterweight to Amazon (AMZN).

The 2022 acquisition of Deliverr (for $2.1 billion) was a major part of building out the Shopify Fulfillment Network (SFN). But it was also just the tip of the investment iceberg.

It’s likely that capital spending to build out a legitimate SFN to rival Amazon would ramp up to north of $1 billion a year by 2025. And stay there for a long time.

This open-ended investment cycle to build a business with lower margins than Shopify has traditionally generated was a bit of a head-scratcher for the analyst community. Especially when considering that the company has so much opportunity remaining in its core eCommerce market.

So, why am I interested in Shopify right now?

To find out, you’ll need to read my write-up on the company below!

What to Do Now

We’re through most of the Q1 earnings season and, despite more turmoil in the regional banking space, the broad market continues to hold up well. Yes, this is partly due to the relatively strong performance of a select few mega-cap stocks, including Microsoft (MSFT), which we own.

But still, after a 7% rally in the second half of April and a month and a half of sideways action, it still feels like a much more stable market than we’ve had for a long time.

The current known unknown that seems like it could trip things up is the debt ceiling debacle. We also have an economy that seems to be inching closer to a true recession.

On the other hand, the Fed has signaled it’s ready to pause its rate hikes (finally!) and taking that heel off the market’s throat is letting stocks breathe a little, even if there are other potential villains in the neighborhood.

Add it all up and it continues to be a market that we need to approach carefully. So, as has been our pattern for some time now, we’ll start with a few partial positions and see how it goes.


Ferrari (RACE) ★ Top Pick ★

Ferrari (RACE) is a luxury sports car company that sells to high-net-worth individuals. Founded in 1929 by Enzo Ferrari, the company has one of the strongest brands in the world and a rich history in Formula One racing (most wins in history).

The big-picture reason to own the stock is that the number of super-rich people in the world is growing at about 5% a year, meaning more people can afford a highly coveted dream car like a Ferrari.

But not everybody that can afford a Ferrari can get their hands on one. It is an ultra-exclusive brand with limited production. Wait times can be a year, sometimes two. On the Q1 2023 conference call a couple of weeks ago, management said the current order book extends into 2025.

That translates into very high profit margins and a business that tends to do well through economic cycles.

Ferrari is growing production. The company is trying to walk that very thin line that balances exclusivity with rising demand.

From 2018 through 2022 it launched 15 new models. Over that time annual revenue (based in euros) grew by 50%.

Last year revenue was €5.095 billion, up 19%. EPS was €5.09. The company produced 13,221 vehicles (+18.5%). There was no discounting.

Ferrari reported Q1 2023 results on May 3. Revenue of €1,429 million was up 38% and beat consensus by 5%. The beat was driven by selling more cars than expected and at a higher average price. That mix helped Ferrari deliver EPS of €1.62, €0.18 ahead of expectations.

Shipments in the quarter totaled 3,567 (+10%) and about 150 more than analysts expected. It’s interesting to see where orders came from.

Europe grew just 15% to 1,534 while the Americas grew 48% to 962. China is a relatively small market with just 396 units shipped, but it’s growing really fast (+139%). The rest of Asia grew 27% to 675 units.

In terms of specific vehicles, the Portofino M, 296 GTB (plug-in hybrid) and 812 Competizione led the charge. First deliveries of the 296 GTS and 812 Competizione A landed in the quarter and shipments of the Daytona SP3 are ticking higher.

As far as future launches, the Purosangue SUV is probably the most anticipated new model, with deliveries expected near the end of the year. If you’re looking for Ferrari’s first pure EV you’ll be waiting until 2025, at the earliest.

Looking through the end of the year, management gave revenue guidance for €5.7 billion and EPS of €6.0 to €6.2. Given the Q1 beat analysts seem inclined to think guidance is conservative, and that price increases could help pad the bottom line.

The Stock

RACE came public in October 2015 at 52 and has done well since. The pandemic high of 279 wasn’t as much of a blow-off top as it was for other high-growth names, though the 40% drawdown afterward certainly suggests the stock got ahead of itself. After bottoming near 167 last June, RACE stabilized and finished 2022 at 2014. The stock has been gaining altitude since, trading exclusively above its 50-day line. Last week’s earnings report catalyzed another jump to new all-time highs just above 290. BUY


Origin Materials (ORGN)

Origin Materials (ORGN) is our wild card stock of the month. It’s an early-stage greentech company with a goal to make carbon-negative materials for the plastics industry out of sustainable feedstocks rather than fossil feedstocks, such as petroleum and natural gas.

To be clear, there is a long list of companies that have tried, and failed, to revolutionize the plastics industry with non-petroleum-based innovations. But that doesn’t mean the collective wisdom of these early innovators isn’t raising the odds of eventual success.

Origin is on the cusp of generating its first revenue this year from its first commercial plant, Origin-1, which is located in Ontario, Canada.

Origin has developed a patented technology platform that takes things like sustainably harvested wood, agricultural waste, wood waste and corrugated cardboard and turns them into various end products, including food and beverage packaging, clothes, textiles, plastics, car parts, carpet, tires, adhesives and soil amendments.

On a more technical level, its technology converts biomass into the versatile building block chemicals chloromethylfurfural (CMF) and hydrothermal carbon (HTC), which can be renewable feedstocks for polyethylene terephthalate (PET) and other performance-oriented polymers.

The company expects its products can compete directly with petroleum-based products on both price and performance.

Origin has a number of partnerships to help develop and get products to market. These include Indorama Ventures (world’s largest producer of virgin and recycled PET resins), SCGP (multinational consumer packaging company), Hyosung Advanced Materials (Korean industrial materials company), Minafin Group (global fine chemical company) and PepsiCo (consumer packaged goods).

There are several significant milestones that have recently been met and/or that are expected in the near future.

First, Origin’s Sustainable Carbon Black Blend was shown to meet/exceed fossil-based N660 performance for tires and mechanical rubber goods.

Second, early tests suggest Origin’s CMF and HTC could be used in things like epoxies, resins, granular activated carbon, and more. More testing is needed but there appear to be a number of options for how the company’s bio-based feedstocks could be used.

Third, the company’s Origin-1 plant has been commissioned and is expected to ramp up commercial production in the current quarter. As production ramps up, customers will be able to qualify products and applications beyond PET.

Finally, design, construction planning and financing arrangements for the second plant, Origin-2, are in the works. Bank of America is helping Origin issue tax-exempt bonds in Louisiana totaling around $400 million. The company is working on federal funding options as well.

Turning to recent results, Origin generated revenue of $1.7 million in Q1 2023 and has $264 million in cash and cash equivalents. Management expects to generate $40 to $60 million in revenue this year as Origin-1 ramps up.

Suffice it to say, there is a lot going on and there is considerable risk in the stock. But it’s an intriguing story that I want to keep an eye on. Adding Origin to our Watch List today.

The Stock

ORGN came public at 10 in September 2020 and like a lot of speculative stocks was strong initially, then fell apart. The big-picture trend with the stock has been characterized by failed rallies that are followed by new lows. The potential difference is that the company was always pre-revenue, now, it’s finally starting to bring something in the door. The stock hit a new low of 3.7 just a few weeks ago and has since rallied to around 4.6. We’re just window shopping right now, looking for signs that ORGN is a good product on sale. WATCH


Shopify (SHOP)

When I left off in my intro I was talking about how Shopify had embarked on an open-ended capital spending program to build out a fulfillment network. And how that was pulling it away from its core eCommerce business and confounding the analyst community.

Given that backdrop, it’s not totally surprising that when Shopify announced a U-turn on its Shopify Fulfillment Network (SFN) plans in early May the market rejoiced, and the company gained over 35% in market value over a three-day period.

To be clear, it’s not a given that the future will be smooth sailing for the e-commerce solutions provider, which has had a relatively tough slog after enjoying the massive online boom during the pandemic (by “tough” I mean 2022 revenue was only up 21%, not 86% like in 2020 or even 57%, as in 2021).

But the current “this U-turn sounds better … but we’re not so sure” mentality among Wall Street analysts just means that there are many more big investors that could jump on the bus, if and when SHOP really begins to pull away from the station.

While it appears the company may have incinerated around $1 billion in capital spending to pursue a failed vision and is simply bailing on the idea, there was more to the announcement than just an admission that management had COVID-brain.

The SFN business is to be sold to Flexport in exchange for a 13% stake (bringing total ownership to around 18%), implying a sale price of about $1 billion. There will be some return on this investment down the road.

Also, a massive, massive amount of future capital spending has been cleared away entirely. And the company is reducing its workforce by just over 20%.

While there is a lot to digest, and it will take some time to really know how this will shake out (for instance the revenue share agreement with Flexport is being ironed out, with details not expected until later in the year), the bottom line is that with this shift in strategy, Shopify is re-focusing on doing what it does best.

And that means running an exceptionally successful e-commerce platform. Which is why the stock rose to greatness in the first place!

We’re going to need a follow-up from management to better understand how all the numbers shake out here. But what we do know is the company did better than expected in Q1 and free cash flow and profit margins are set to go up significantly without the SFN drag.

It seems reasonable for Shopify to grow revenue by around 15% this year then bump the growth rate up in 2024 and maybe grow by 25% in 2025. EPS could go from $0.22 this year to $0.50 in 2024 and $0.80 in 2025. But again, these are rough numbers, and more details are needed.

Bottom line, for now, is this is something of a back-to-what-we-do-best story for Shopify, and I think that’s an exciting story. Let’s give the stock some time to digest the news and see if we can learn more specifics before deciding whether or not to get involved. Shopify goes on our Watch List today.

The Stock

Shopify came public at a split-adjusted 1.5 in May 2015. At the pandemic peak, it traded near 176 (again, split-adjusted). While revenue has continued to trend higher since forever, SHOP fell nearly 50% from its pandemic high through October 2022. After bottoming near 23.6 the stock enjoyed a tentative recovery with a few decent rallies. From the end of February through May 4 SHOP traded mostly in the 40 to 50 range. Then it broke out on the SFN divestment news and rallied nearly 40%. The stock has given a little back over the last week and closed yesterday at 60, which is still the highest it’s been in over twelve months. WATCH


Si-Bone (SIBN)

I added MedTech company Si-Bone (SIBN) to our Watch List in March, and after a very nice Q1 2023 report and a well-received secondary offering, the stock and the story look even more attractive. We’ll jump into the name this month with a half-sized position.

The backstory is that Si-Bone specializes in implants that solve issues of the sacroiliac joint (SI) and pelvis.

It has developed minimally invasive, titanium surgical implant systems (triangle-shaped implants, screws, etc.) to address SI dysfunction and other unmet clinical needs in pelvic fusion, fixation and management of pelvic fractures. It has also developed instruments to help place implants during surgery.

Si-Bone’s first product (2009) was the first generation iFuse Implant System to fuse the SI joint and treat SI joint dysfunction.

It has since launched three new FDA-approved product lines, including the iFuse-3D implant (2017) for pelvic trauma, iFuse-TORQ threaded implant (2021) for adult spinal deformity and the iFuse Bedrock Granite threaded implant (2022) for sacroiliac fusion and sacropelvic fixation.

Altogether these three markets are worth around $3.7 billion, assuming 470,000 annual procedures in the U.S. Less than 10% of revenue comes from international markets.

The company used some of the downtime during the pandemic to develop new solutions (TORQ and Bedrock Granite), build clinical evidence and get the word out to surgeons. Those investments appear to be bearing fruit now and have paved the way for Si-bone to go deeper into markets such as pelvic trauma and adult deformity/degeneration.

The first quarter of 2023 was impressive. Revenue jumped 46% to $32.7 million, beating by $3.6 million. EPS of -$0.41 improved by 24%.

The company had 950 active surgeons (+40%) in the U.S. and 3,500 procedures in the quarter (+48%).

Management increased full-year guidance by the amount of the Q1 beat to $128 - $131 million (+20% to 23%). That implies there’s room to outperform in the last nine months of the year.

Coming out of the quarter, Si-Bone has great momentum due to rising procedure volumes, a larger product portfolio and expanding use of certain products for procedures that they weren’t necessarily expected to be used for.

The company is also better funded now than it was just a few weeks ago, thanks to a roughly $70 million secondary offering (priced at 22). I expect the funds will help the company expand its sales and R&D investments.

The Stock

SIBN came public at 15, peaked at 37 during the pandemic then bottomed at 11.2 a few weeks after the Q3 2022 earnings report last November. It kicked around in the 11s for a bit then jumped above its 200-day line (near 15.8 at the time) in the beginning of January and hasn’t looked back since. Shares were trading near 22 just before the Q1 2023 earnings report on May 1, then rallied to an intra-day high of 27.2 the next day. A secondary offering priced at 22 right after the event pulled SIBN down to the offering level. And it’s popped right back up to almost 25 over the last week. BUY HALF


Tecnoglass (TGLS)

Tecnoglass (TGLS) makes architectural glass, windows and related aluminum products for the residential and commercial construction markets in the U.S. (90% of revenue) and Latin America.

The $2.3 billion market cap company has been in business for over 35 years, is the second-largest provider of architectural glass to the U.S. and is delivering double-digit revenue and EPS growth as it expands across the U.S. and into Europe. Florida is an especially significant market.

Tecnoglass’s customers include developers, general contractors and commercial installers. Manufacturing is located in Barranquilla, Colombia and distribution and services operations are in Florida.

The company’s glass is found in some of the best-known buildings in the Americas, including Salesforce Tower (San Francisco), Hub50House (Boston), Trump Plaza (Panama), One Thousand Museum (Miami) and Paramount Miami Worldcenter (Miami).

In the residential market, Tecnoglass sells through a dealer network and specializes in high-performance, energy-efficient, Low-E and impact-resistant windows and doors. Its hurricane-resistant glass has been certified for use in Florida, one of the most challenging areas to become code-approved.

The company has been growing very quickly in the residential market by focusing on coastal states then expanding inland and by working with production homebuilders. In 2022 residential was almost 45% of total revenue.

Over the last two years, quarterly revenue from the residential market has nearly quadrupled and has been growing between 40% and 60% over the last three quarters. In the most recent quarter, it reached $83.6 million (+40%).

In the commercial market, Tecnoglass specializes in curtain wall systems (freestanding, exterior wall systems that protect against air and water), storefronts, railings, louvers and interiors, custom-designed, blast and hurricane-resistant windows and doors, architectural glass products and a variety of aluminum products used to hold and separate glass.

U.S. commercial sales have been very strong, rising 65% to $111.2 million in Q1 2023. Gross profit in the quarter was up 8.3% to a record 53.2% thanks to higher sales, revenue mix and manufacturing automation projects.

Altogether, Q1 2023 revenue grew by 51% to $202.6 million. EPS was $1.08. Looking forward, Tecnoglass has issued full-year 2023 revenue guidance of $810 - $850 million (+13% to +19%). EPS should be around $4.21, up 27%. We’ll put it on the Watch List today.

The Stock

TGLS came public at 10 back in 2012 and didn’t do much for a long time. It was trading for 2.15 after the pandemic broke out. But management got their act together, and with revenue growth, TGLS responded. By the end of 2021, the stock was trading up close to 35. A 50% drawdown reset things, and after trading under its moving average lines for a while, TGLS broke above both the 50- and 200-day lines to close at 23.6 last November 3, the day after the Q3 2022 earnings release came out. It’s been grinding steadily higher since and closed yesterday at 46.8, however after the close a secondary offering was announced, priced at 43. TGLS will likely trade down for a few days, possibly opening the door for new money to move in. WATCH


Previously Recommended Stocks

Since the April Issue we’ve stepped away from our remaining partial position in NerdWallet (NRDS) and our half stake in SiTime (SITM).

Today we’re selling our half stake in Catalyst Pharmaceuticals (CPRX). We’ve had a wild ride with this stock. The lurking issue is that there is just too much uncertainty surrounding IP protection. Catalyst has filed suit against a number of companies, including Teva (TEVA), to protect its patent portfolio. And while a quick and relatively painless outcome is always the hope we just don’t know how it will shake out. Rather than hold and hope we’ll move on to opportunities with a bit more certainty. SELL

Today we’re droping nVent (NVT) from our Watch List due to uninspiring performance after the Q1 2023 earnings report, which was in-line with expectations.

An updated table of all stocks rated BUY, HOLD and WATCH as well as recent stocks SOLD, is included below.

Please note that stocks rated BUY are suitable for purchasing now. In all cases, and especially recent IPOs, I suggest averaging into every stock to spread out your cost basis.

For stocks rated BUY A HALF, you should average into a position size that’s roughly half the dollar value of your typical position. We may do this when stocks have little trading history (for instance, IPOs), when there is more uncertainty in the market or with a stock than normal, or if a stock has recently jumped higher.

Those rated HOLD are stocks that still look good and are recommended to be kept in a long-term oriented portfolio. Or they’ve pulled back a little and are under consideration for being dropped.

Stocks rated SOLD didn’t pan out, or the uptrend has run its course for the time being. They should be sold if you own them. SOLD stocks are listed in one monthly Issue, then they fall off the SOLD list.

Please use this list to keep up with my latest thinking, and don’t hesitate to email with any questions.

Active Positions

Company NameTickerDate CoveredRef Price5/17/23Current GainNotesCurrent Rating
AirbnbABNB1/20/22 & 8/4/22139.02105.74-24%Top PickBuy
e.l.f. BeautyELF4/19/2393.5387.06-7%Buy 1/2
FerrariRACE5/17/23NEW293.33NEWTop PickBuy
HubSpotHUBS4/19/23417.04477.5315%Top PickBuy 1/2
MicrosoftMSFT2/15/23268.46311.8416%Top PickBuy
PulmonxLUNG3/15/2311.0412.5814%Buy 1/2
RivianRIVN10/19/2231.1713.24-58%Top PickBuy 1/2
SamsaraIOT3/3/2319.2719.612%Buy 1/2
Si-BoneSIBN5/17/23NEW24.52NEWBuy 1/2
SnowflakeSNOW10/19/22 & 3/8/23156.555170.459%Buy
Xponential FitnessXPOF9/21/2219.8628.443%Top PickHold 2/3
Open TextOTEX4/19/23-38.75-Watch
Origin MaterialsORGN5/17/23NEW4.63NEWWatch

Recently Sold Positions

Company NameTickerDate CoveredReference Price^Date SoldPrice Sold^Gain/lossNotes
AxonicsAXNX5/18/2249.091/9/2357.3817%Sold Second 1/4
HalozymeHALO12/21/2257.891/11/2350.45-13%Bought 1/2, sold 1/2
Bill.comBILL6/17/2077.731/13/23101.7531%Sold Final 1/4
ChewyCHWY12/21/2240.751/13/2343.577%Bought 1/2, sold 1/2
Xponential FitnessXPOF9/21/2219.861/13/2325.428%Sold 1/3
AxonicsAXNX5/18/2249.092/2/2361.5725%Sold Final 1/4
TELUS InternationalTIXT1/18/2322.262/15/2321.94-1%
NerdWalletNRDS11/16/22 & 1/13/2311.312/16/2318.7866%Sold 1/3
Option Care HealthOPCH10/19/2233.782/23/2331.13-8%Trade Opportunity
PowerSchoolPWSC2/15/2323.732/23/2323.59-1%Bought 1/2, sold 1/2
PinterestPINS9/21/2224.493/8/2325.946%Bought 1/2, sold 1/2
BioAltaBCAB11/16/22 &1/13/236.043/10/232.59-57%
Sight SciencesSGHT1/18/2312.383/10/239.79-21%Bought 1/2, sold 1/2
NerdWalletNRDS11/16/22 & 1/13/2311.313/10/2319.3271%Sold second 1/3
NerdWalletNRDS11/16/22 & 1/13/2311.315/3/2310.36-8%Sold final 1/3
SiTimeSITM3/15/23124.195/4/2389.96-28%Bought 1/2, sold 1/2
Catalyst PharmaceuticalsCPRX12/21/2218.995/17/2312.44 (est.)-34% (est.)Bought 1/2, sold 1/2

The next issue of Cabot Early Opportunities will be published on June 21, 2023.

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.