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Small-Cap Confidential
Undiscovered stocks that can make you rich

November 10, 2022

This week the cryptocurrency market is in absolute turmoil as one of the biggest exchanges, FTX, is insolvent. This is bleeding into equity markets too.

Crypto Contagion?
In last Friday’s earnings wrap-up bulletin to subscribers of Cabot Early Opportunities I wrote the following:

“There appears to be considerable weakness today (Friday) among SaaS stocks. While this group has been weak in the wake of the FOMC meeting the extent of the move (many stocks -10% or more) suggests there could be something else going on. Maybe a fund is taking heat and dumping positions or something along those lines. I won’t be remotely surprised if we hear about something next week.”

This week the cryptocurrency market is in absolute turmoil as one of the biggest exchanges, FTX, is insolvent. This is bleeding into equity markets too.

According to The Wall Street Journal, things began unravelling late last week when CoinDesk published a report suggesting Hong Kong crypto-trading firm Alameda Research’s (majority owned by Sam Bankman-Fried, who founded both FTX and Alameda) balance sheet was largely made up of FTT, a cryptocurrency created by FTX.

Long story short, the crypto world is lightly regulated and there are governance issues around market makers, exchanges, collateral, etc., that don’t exist in equity markets.

As the FTT cryptocurrency went into free fall FTX got into trouble. It reportedly needs a bailout of $4 billion to $8 billion. Another exchange, Binance, has been poking around but has, reportedly, decided not to step in and buy FTX.

This is all relevant because there are sizable funds caught up in the FTX crash. Last year Softbank, Sequoia, Third Point and Thoma Bravo all participated in a $900 million funding round. Tiger Global is also involved. The deeper you dig and the further you go back, the longer the list gets.

On Wednesday, Sequoia wrote a letter saying it is writing off its $150 million investment, down to $0, due to solvency risk at FTX.

Right now connecting the dots from the FTX debacle to the recent selloff in equities, and especially high growth names (like software stocks), is imprecise. But there are surely links, and they’ll become more clear in the days and weeks ahead.

Stepping back, it’s interesting that the Fed downplayed risks from the crypto market just last week.

In the Fed’s November 4, 2022 Financial Stability Report they wrote, “The turmoil in the digital assets ecosystem did not have notable effects on the traditional financial system because the digital assets ecosystem does not provide significant financial services and its interconnections with the broader financial system are limited.”

Um, are you sure?

On top of that, the October CPI report was delivered this morning, and for once inflation came in better (i.e. less high) than economists were expecting: 7.7%, versus estimates of 7.9%. That’s still high, of course, but the market seems to like it, with futures up in the 2-3% range.

Buckle up. It’s going to be another interesting day.

As far as small caps go, at the index level they’ve been holding up relatively well through all this. The S&P 600 Index is about where it was a week ago (and from two weeks ago) and just barely above its 50-day moving average line. On a valuation basis, the asset class is still “cheap,” with a forward P/E of around 12.

Recent Changes


Enovix (ENVX) reported last week and investors were not pleased with the greater focus on the Gen2 line at the expense of near-term production from the Gen1 line. This doesn’t seem like a huge deal because Gen1 isn’t sufficient to supply commercial quantities for large customers anyway. Better to get Gen2 right since that’s the future. There is more than a little speculation that Enovix is working closely with Apple and/or Samsung to support smart watches, smartphones and laptops. The MOU (non-binding) that Enovix pushed out just prior to the press release doesn’t disclose the customer, but management confirmed it is the same company as announced in Q2 that they were working with on smart watches. Both of these companies have a history of funding capex investments with suppliers so they can support sufficient quantity production. I have kept ENVX at buy and shares have rebounded a little since the report. Clearly this is a higher risk, higher potential return stock (similar to a small-cap biotech). Invest accordingly. BUY

Flywire (FLYW) beat Q3 expectations this week with revenue of $95.2 million (+40%). EPS of -$0.04 fell $0.08 shy of expectations due to foreign exchange (FX) headwinds and fewer visas for Chinese students (offset somewhat by more for Indian students). Still, management is guiding for 30%+ annual revenue growth (full-year guidance for 2022 implies 32% growth) and with the pipeline up 50% YTD continues to invest in growth. Despite the risks of today’s CPI report impacting the broad market I elected to fill the second half of our FLYW position yesterday. A move up to the level of just two weeks ago (around 22) would be more than enough to get us back to break even (or above) factoring in our reduced costs basis. BUY SECOND HALF

Inspire Medical Systems (INSP) reported last week and the stock enjoyed a run back above its 200-day line. It has since returned to that trendline and I’m keeping at hold due to broad market risks. We’re up over 230% on INSP and it’s outperformed the S&P 600 Small Cap Index by more than 200% since we’ve held it. The company destroyed Q3 expectations and boosted full-year guidance by more than the beat. Third-quarter revenue was up 77% to $109.2 million (beating by $15 million) thanks to continued utilization improvements as a new CPT code and more efficient two-incision procedure roll-out. Guidance for 2022 goes up by $28 million to $384 - $388 million. HOLD

Procept BioRobotics (PRCT) reported last week and sold off after the event, but the stock hasn’t fallen below support at 36.7 (closed at 39.4 yesterday). Revenue grew 135% to $20.3 million ($3.1 million beat) while EPS of -$0.51 missed by $0.03. This was the fifth quarterly revenue beat in a row. Management raised full-year 2023 guidance to $72.5 million (+110%) from the previous range of $66 - $68 million (implies Q4 should be better than expected too). Management said they’re moving manufacturing into a larger facility and that will put pressure on margin expansion in the coming quarters but help in 2024. It’s a buy in a stronger market but in this one it’s a hold. HOLD

Rani Therapeutics (RANI) gave an update a couple weeks ago, confirming that repeat-dose data for Phase 1 RT-102 will come in Q4 and that it expects to initiate a Phase 2 for RT 102 in 2023. It also said it has begun preclinical development of RT-111, a RaniPill GO capsule to deliver STELARA which is used for treatment of moderate to severe plaque, psoriasis, active psoriatic arthritis, moderate to severe Crohn’s disease and moderate to severe ulcerative colitis. Also in 2023 management expects to start Phase 1 studies for two additional pipeline molecules, RT-105 and RT-110. Management decided not to continue with development of RT-109 (human growth formula). Shares have been under pressure. Management speaks at the Stifel Healthcare conference (next Tuesday and Wednesday). Maybe they’ll be able to boost enthusiasm. HOLD

Repligen (RGEN) reported early last week and results beat expectations. Revenue of $201 million was up 12.6% (19% at constant currency), a $9.2 million beat, while adjusted EPS of $0.77 beat by $0.09 and was a penny shy of EPS in the year-ago quarter. In Q3 base business contributed 83% of revenue while COVID-related sales were 14%. This meshes with the “Repligen is moving past COVID reliance” rhetoric we’ve heard from management and analysts over the last couple of quarters. Updated full-year 2022 revenue guidance has been tightened by $5 million to a range of $795 - $805 million versus $790 - $810 million previously, or up 19% to 20% versus 18% to 21%. RGEN is essentially unchanged since the report and remains at an attractive valuation. Like other stocks we’re still up nicely on, we’re biding our time and waiting for a more constructive market before moving back to buy. HOLD

Sprout Social (SPT) bucked the trend among SaaS stocks and had a positive reaction to its earnings report. This may be partially because the stock sold off just a couple of days before the event. So far SPT is holding above support near 47 (stock at 54 now) and has a string of five consecutive up days. The company beat on both the top and bottom line delivering Q3 revenue of $65.3 million (+33%), a $310K beat, and adjusted EPS of -$0.02, a $0.02 beat. Full-year guidance was increased modestly to about $254 million and implies 35% growth. The story here is about success with larger accounts (probably helped by the (CRM) partnership) and some weakness in smaller accounts. While our remaining stake in SPT has drifted lower this year we’re still up around 50% and beating the S&P 600 index by over 20%. HOLD HALF

TransMedics Group (TMDX) soared more than 20% after last Thursday’s monster Q3 report. Revenue of $25.7 million (+378%) beat by $6.8 million and EPS of -$0.25 beat by $0.15. Around $1.4 million in revenue was due to an updated trial benefit but even backing that out this was a terrific quarter. Management raised full-year guidance from $67 - $75 million to $80 - $85 million, far above consensus (about $76 million). The company is somewhat constrained by limited perfusion modules and has fired up a second shift, as well as expanding air and ground transportation networks, to keep things flowing. With the big post-earnings move TMDX may be more prone to other stocks to sell off if the market takes a turn down (plenty of meat on the bone here) so we’re sticking with a hold rating on our remaining stake. HOLD THREE QUARTERS

Treace Medical (TMCI) is our newest stock and we jumped in with a half-sized position last week, just a few days ahead of Tuesday’s earnings report. Shares drifted lower into the event then popped 5% yesterday, impressive performance in the face of a broader market selloff. Treace delivered revenue of $33.1 million (+53%), beating estimates by $3.03 million, and EPS of -$0.22 beating by $0.07. Management boosted full-year guidance by slightly more than the Q3 beat, implying Q4 should also be better than expected. New 2023 revenue guidance is $135 to $138 million (+43% to +46%). Management says sales of new products and ancillary solutions remain high and they are investing to support Q4 and 2023 as demand for Lapiplasty continues to be strong. Keeping at buy half. BUY HALF
Earnings: Done

Xometry (XMTR) reported this morning and beat expectations. Revenue rose 83% to $103.6 million (beating by $200K) and adjusted EPS of $0.11 beat by $0.13. Marketplace Active Buyers rose 40% to 36,789. Fourth-quarter guidance of $104 to $106 million (+55% to +58%) appears to be below expectations of $116 million. The press release indicates that so far in Q4 the company is “seeing record orders while suppliers are taking jobs at significantly lower prices, dampening near-term revenue growth.” The conference call is at 8:30 am ET (after this writing). XMTR is indicted lower pre-market, likely as a result of the lower-than-expected Q4 guide. Keeping at hold for now and looking forward to the call for more insights. HOLD

Please email me at with any questions or comments about any of our stocks, or anything else on your mind.

Stock NameDate BoughtPrice BoughtPrice on 11/9/22ProfitRating
Enovix (ENVX)10/6/222012-42%Buy
Flywire (FLYW)8/4/222519-23%Buy Half
Inspire Medical (INSP)10/4/1959198238%Hold
Procept BioRobotics (PRCT)3/3/22253958%Hold Half
Rani Therapeutics (RANI)10/7/21 & 7/28/22146-56%Hold
Repligen (RGEN)11/2/18 & 12/31/1859175195%Hold
Sprout Social (SPT)9/3/20365448%Hold Half
TransMedics Group (TMDX)7/7/22345252%Hold 3/4
Treace Medical (TMCI)11/3/222221-3%Buy Half
Xometry (XMTR)1/6/225250-3%Hold
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.