Market volatility has picked up. Stocks are popping and dropping all over the place. In other words, welcome to the thick of earnings season.
There’s always plenty of uncertainty around earnings. But this year, we also have the election, looming interest rate hikes, and analysts “flipping” their estimates for companies to put greater weight on projected 2017 estimates, which, are largely reliant on how things go this quarter!
The bottom line is there’s a lot going on. And the market has a little indigestion. It feels (and looks) a lot like early May and mid-June for small caps, when you just weren’t sure what the day would bring for your stocks. In times like these, fundamentals often take a back seat to technicals for a few weeks. Thankfully, we will have heard from most of our stocks by the end of next week, so we don’t need to endure too many more days in limbo. And today’s GDP report (up 2.9%) was a bit of good news too.
The plan is to hold through earnings, then assess each stock individually. If we have a number of good reports, but those stocks fall in the days and weeks after reporting, we’ll know that investors’ appetite for stocks is waning. I don’t think that will be the case (I foresee a typical market correction, but nothing more), but you never know.
Yesterday, things worked in our favor as two of our stocks, Mindbody (MB) and LeMaitre Vascular (LMAT), were up well over 10% after reporting. Today, we have a report from LogMeIn (LOGM) to discuss, and it’s also up around 10%. So far, so good.
But let’s not plan on how to spend all the capital gains just yet. Over the past week, more of our stocks have moved lower than have moved higher (sorry for the gut check). That’s not too surprising given that the S&P 600 Small Cap Index broke below 730 on Wednesday. We want a quick rally now to re-establish 730 as an area of support.
That said, it’s more important that our specific stocks hold up then than the broader small-cap asset class. We had three companies report this week. Next week, we have six more positions reporting. And I’ll have a new report heading your way on Friday morning. It’s going to be a busy week, so enjoy the weekend and get ready!
Updates
Aerohive (HIVE) No material update. I moved the stock to sell two weeks ago after management pre-announced and guided below expectations. SELL
Confirmed Earnings Release: November 2
Aspen Aerogels (ASPN) Shares have come in a little after a strong showing last week. Management will have a lot to cover on its earnings call next Thursday, including an update on the deal with BASF. We’re up 23%. Five firms are now covering the stock, and their price targets range from 6 to 10. Shares trade around 6.30 now. It’s a buy, but be aware that shares will likely be volatile after the earnings report. BUY.
Confirmed Earnings Release: November 3
eMagin (EMAN) Still waiting on any sort of news. As I said last week, management needs to follow through on previous statements regarding product releases or the stock is going back to 2. We have a history of overpromising and underdelivering here, so it’s hard to have a lot of confidence. Nevertheless, many investors have been holding on for too long to walk before giving management another shot (based on recent comments, this is “… what we’ve been waiting for”!). The stock has been performing relatively well. Keep holding. HOLD.
Confirmed Earnings Release: November 11
LeMaitre Vascular (LMAT) Nothing new since I detailed the company’s third-quarter results in yesterday’s Special Bulletin. It’s up again this morning, bringing our current gain up to 37%. HOLD.
Earnings: DONE
LogMeIn (LOGM)
Shares are up around 10% today after LogMeIn delivered revenue growth of 22% to $85.1 million (beating by $810K) and EPS growth of 22% to $0.56 (beating by $0.03). Management also raised full-year guidance to reflect 24% revenue growth to around $335 million. Collaboration Cloud led the growth (up 32% and now 36% of revenue) as join.me expanded again (they landed Pinterest as a client). Identity and Access Management growth (up 29% and 36% of revenue) was driven by Central and LastPass (which is growing faster than when it was acquired). Service Cloud grew by 7% (now 28% of revenue) as Rescue Lens catches on with insurance companies (to help submit claims), as well as manufacturing and consumer electronics companies (I think they landed Ecobee, but I’m not 100% sure). One exciting piece of news is that the company will be releasing a new Support of Things product that combines elements of Rescue, BoldChat and Xively. It’ll be out sometime in 2017.
All the analysts on the conference call wanted to hear more details about the company post-merger. We got very little new information. Things sound like they’re going great as far as the integration planning for GoTo, which should close in Q1 2017. LogMeIn has announced management teams internally, and says everybody is excited to get to work. It believes it can still realize over $100 million in synergies from the acquisition. But it wasn’t ready to get into a lot more details on products and pricing, saying it preferred to hold off until the summer to discuss, once the deal is complete. I can’t fault them for that. There’s no reason to give the competition a jump on things or to tie the company to something that might change as the integration takes place. The bottom line is that LogMeIn continues to execute, and the stock is going up. Why complicate things?! Keep holding half. We’re up around 66%, at the moment. HOLD HALF.
Earnings: DONE
MindBody (MB) Nothing new since I detailed the company’s third-quarter results in yesterday’s Special Bulletin. It closed up over 10% yesterday. Buy on the dips. BUY.
Earnings: DONE
Mitek Systems (MITK)
Shares have been bleeding strength over the month of October and cracked below the dreaded 7 level yesterday. They’re now below their 200-day moving average (where they haven’t been in a year), are technically oversold and are 30% off their peak of 9.50 from late May. Assuming everything is good within the company (I haven’t heard any rumors that it’s not), this should be a tradeable buying opportunity heading into earnings, which are due out late next Thursday. At the same time, I wouldn’t go in whole hog given the stock’s lack of momentum since early summer, and the reality that earnings releases are notoriously difficult to consistently trade profitably. But if you want to buy a small amount as a trade, I wouldn’t argue. HOLD HALF.
Confirmed Earnings Release: November 3
Ooma (OOMA)
Shares were up modestly this week and B. Riley established coverage with at 15.50 price target. Credit Suisse and Bank of America have the value pegged closer to 12. In either scenario, we win. The next quarterly report (third quarter of fiscal 2017) isn’t due out until early December, so we’re in accumulation mode here. BUY.
NanoString Technologies (NSTG) NanoString remains an extremely compelling story and last quarter’s results turned the ailing stock around. Even though it’s come down a few dollars per share in October, the stock is still up over 40% since early August. We now need another quarter of solid results to validate the bull-case scenario. And that will depend on instrument sales continuing to meet or exceed expectations, which in turn drives consumables sales (roughly $100K annually per machine). We’ll get an update on Wednesday when quarterly results are released. Keep holding—the stock’s action suggests investors will stick with the stock through the release. If it’s good, we should go higher. If it disappoints, I expect a swift and harsh reaction. HOLD.
Confirmed Earnings Release: November 2
Primo Water (PRMW)
The stock is down around 5% this week as we march toward Tuesday’s earnings release. I attribute this weakness to a lack of new buyers after the big move two weeks ago, not anything wrong with the stock. This earnings report will be fascinating given the Glacier Water Services acquisition. After that was announced, B. Riley and Barrington moved their price target up to 15 (13% above yesterday’s close). Keeping at Hold. HOLD.
Confirmed Earnings Release: November 1
Q2 Holdings (QTWO)
Q2 earns the “most boring stock of the fall award” given that it has done absolutely nothing since the end of August. I’ve run out of ways to say “it’s been a quiet week.” Thankfully, we’ll get an earnings report next Thursday and I’ll finally have something material to discuss. I like the stock and think it’s a buy right here. But be aware! The market punished Q2 after results were slightly less than terrific last quarter. Analysts wanted more forward guidance, and management just wasn’t willing to throw numbers around. I think that’s the right call. But it also means we have two months of pent up aggression (for lack of a better word) in this stock. Expect a significant move on earnings, either way. I think (and hope) it’ll be higher. BUY.
Confirmed Earnings Release: November 3
USA Technologies (USAT)
Shares have been weak lately, including a 5% drop yesterday. News that 9.9% shareholder Legion Partners has asked USA Technologies’ management team to evaluate its strategic alternatives hasn’t translated into positive performance. This stock has been subject to significant corrections so this one isn’t out of the norm (it has broken its 50-day moving average five times in 2016). If it hits the 200-day moving average (at 4.43), I’ll become more concerned. Otherwise, my inclination is to keep at Hold, with a note that picking up a few shares during this dip could generate a quick profit. Earnings are due out within the first two weeks of November. Also, MinuteKey, a key duplication kiosk operator (look for them in Lowes and Wal-Mart), has opted to go with USA Technologies. HOLD.
Confirmed Earnings Release: November 9
Please email me at tyler@cabot.net with any questions or comments about any of our stocks, or anything else on your mind.
Cabot Small-Cap Confidential Stocks and Closing Prices on October 27, 2016 at 4pm:
