Everybody’s focus is on the high-stakes chess game the U.S. and China are playing with respect to trade, and the upcoming Uber IPO. But behind the scenes there’s a nice little rally going on in a certain group of small-cap stocks!
Obviously, I’m talking about our portfolio, which is up an average of 4.7% over the past week and 8.7% over the past two weeks.
Leading the charge is Avalara (AVLR), which was up 27% this week and 31% over the past two, CareDx (CDNA), up 16% this week and 27% over the past two, Repligen (RGEN) up 6% this week and 22% over the past two, and Arena Pharmaceuticals (ARNA), up 11% over the past week. Oh, and Goosehead Insurance (GSHD) is up 16% over the past two weeks.
With these moves, and excluding Domo (DOMO), which was just added last Friday, and Chefs’ Warehouse (CHEF), which was sold for a gain of 10% on May 2, our current portfolio is up an average of 83%.
The latest strength can largely be attributed to earnings-related moves. But these moves reflect investor confidence in the long-term growth of our relatively small/young companies, not just what was done over a three-month period.
We’re doing great and it’s fun to participate in this success. But, don’t get complacent! The market can go south quickly (as we saw late last year). Be appropriately conservative and follow the latest ratings on each of our stocks.
I’ve covered most of the earnings releases already so many of today’s updates are shortened versions of the results. There is also an earnings-related update on Quanterix (QTRX), which was added just over a month ago and reported yesterday (results were great, and the stock is up this morning).
Changes this week
Arena Pharmaceuticals (ARNA) From HOLD to BUY
Updates
AppFolio (APPF) reported last week with revenue up 35% to $57.1 million (beating by $330K) and GAAP EPS of $0.11. Management gave 2019 guidance for revenue of $250 million to $255 million (up 33%), which straddles consensus of $252.6 million. It was a good quarter and after an initial dip the stock is bumping back against its all-time high. Let’s continue to hold on and give the market some time to digest the results. I suspect the stock may need to cool down a little before making another run given that it’s up over 60% so far in 2019! Our total gain is 217%, so far. HOLD.
Earnings: DONE
Arena Pharmaceuticals (ARNA) reported Wednesday and I detailed the results in yesterday’s Special Bulletin. The quarter was mostly an update on the trial designs for etrasimod in ulcerative colitis (UC), plus other pipeline updates. Stay patient, my friends. I rated the stock a “Buy” in yesterday’s update but neglected to note that was an upgrade from “Hold.” BUY.
Earnings: DONE
Avalara (AVLR) reported a knockout quarter Wednesday that sent the stock soaring to new highs. Revenue was up 38.4% to $85 million (beating by $6.3 million) and EPS of -$0.01 beat by $0.15. Management put forth guidance that’s far above what analysts had projected. Full-year revenue should be around $346 million to $349 million (consensus was $332 million). The market loves the result because the long-term trends are getting stronger and Avalara is in a great position to capitalize. Keeping at Buy but look for dips on which to accumulate. BUY.
Earnings: DONE
Bottomline Technologies (EPAY) reported last week with revenue up 5.2% to $106.4 million (beating by $1.98 million) while adjusted EPS of $0.33 beat by $0.04. Shares have acted about like they did last quarter—they opened down the next day and then have recovered a little over subsequent days. The stock didn’t crash through any support so overall the story is about the same as it’s been, the stock is just trading about 10% below where it was over most of the last three months. It’s tempting to dump Bottomline since it’s not performing, but on the other hand I think we can get a better exit price if we’re patient and if you don’t have any pressing need for the capital it probably makes sense to hang on a bit longer. HOLD.
Earnings: DONE
CareDx (CDNA) delivered a quarterly report Wednesday that was good enough to get shares moving again (they closed up over 10% yesterday). The headline numbers included 85% revenue growth to $26 million and adjusted EPS of $0.05, which beat by an impressive $0.09. There’s no update on the litigation with Natera (NTRA), which has the rest of the month to respond. The trends here are still good and while litigation concerns will likely keep the stock from totally taking off, it seems some concerns have lifted and we could see some follow-on strength. Still, we’ll stay at Hold here since we’re up 40% over just four months and a little conservativism given the weakness in March and April isn’t a bad idea. HOLD.
Earnings: DONE
Codexis (CDXS) reported Monday, delivering a better-than-expected quarter with revenue up 11% to $15.6 million (beating by $1 million) and EPS of -$0.15 beating by $0.03. As I wrote in my Special Bulletin, the overarching takeaway from the quarter wasn’t any one thing but the sum total of a lot of long-term growth initiatives to build a portfolio of revenue-generating strategic supply and licensing agreements. Codexis is an under-the-radar protein engineering specialist. I still like it. BUY.
Earnings: DONE
Everbridge (EVBG) reported Monday and jumped up to a new all-time high. Revenue was up 40% to $42.8 million and EPS of -$0.15 beat by $0.03. Big picture, the story here continues to be about a large, global opportunity to sell Everbridge solutions into, and new product development that fits the market’s needs. Keep Holding. We’re up around 400%. HOLD.
Earnings: DONE
Goosehead Insurance (GSHD) reported last week with revenue up 58.5% to $23.1 million (beating by $1.8 million) and adjusted EPS of $0.18 beating by $0.06. Management maintained its 2019 outlook for revenue of $700 million to $725 million (up 33% to 41%). Analyst figures have been updated; they now see revenue up 43.3% for the year. Shares spiked after the announcement but have begun to come back down. This is a streaky stock. Eventually it will find its groove. Until then, keep buying on modest pullbacks. BUY.
Earnings: DONE
Quanterix (QTRX) reported a huge quarter yesterday with revenue growth of 64% to $12.3 million versus expectations of 35% growth to $10.2 million. Adjusted EPS of -$0.36 beat by $0.04. Growth was driven by nice traction in instrument sales (up 70% to $3.4 million) as well as a big uptick in consumables (up 124% to $6.1 million). Services revenue was also up, by 11%, to $2.8 million.
Recall from my report that Quanterix has been releasing new instruments for running immunoassays, including a less expensive range of benchtop units called the SR-X (launched late 2017). The SP-X (launched late 2018/early 2019) is designed for oncology and has launched and is contributing sales, but it’s still early. The newest large-format instrument, the HD-X, is slated to launch later this year. Management still plans to expand its consumables offerings with 25 new assays planned for later this year. It has hired around 40 salespeople to help with its expansion effort.
The timing of orders can be a bit lumpy as many customers order in bulk for clinical trials. So management was quick to caution that it doesn’t plan for consumables to grow at this pace forever. But it also said it can’t really predict trial volumes and that its consumables have a relatively short shelf-life so it’s not like customers can buy and sit on them for six months. Suffice to say it doesn’t provide guidance (revenue is only ~$10 million a quarter, after all), but expects to grow +40%.
Honestly, there wasn’t much news other than the results. If you need a refresher on Quanterix go back and read my report. The high-level pitch is that the proteomics specialist is commercializing a disruptive protein analysis technology that has the potential to detect disease in seemingly healthy, asymptomatic people, with simple blood draws taken as part of routine health screening. It’s focused on the research market now because there is no regulatory and reimbursement risk. But it sees a 10x larger market in diagnostics, so is trying to plot a path to enter that market without exposing investors to all the ups and downs that come with diagnostics companies. I appreciate that. It will be interesting to see what it comes up with.
This is one of the more speculative companies in our portfolio, but it is led by an experienced management team that is trying to be investor friendly. Take that for what it’s worth. I’m keeping at Buy. BUY.
Earnings: DONE
Q2 Holdings (QTWO) reported on Wednesday and delivered a somewhat messy quarter with revenue beating but profits coming in light due to spending and investments. Some analysts are wondering when the business model will show the leverage a software company should have. In this case the cost of implementations just isn’t covered until customers get onboarded, which can be around a year or so after a deal is signed. That’s just the deal. The big picture is good and I’m keeping at buy. Revenue was up 30% to $71.3 million, beating by $640K, and adjusted EPS of -$0.05 missed by a penny. Management raised full-year guidance by $3.3 million, with revenue expected to be up 28% to 29% to $308.8 million to $311.8 million (consensus was $307.7 million). The raise is attributed to traction in Cloud Lending (digital banking) and onboarding customers with the Gro solution, both of which are also helping cross-selling. BUY.
Earnings: DONE
Rapid7 (RPD) reported a great quarter last week with revenue up 34% to $73.2 million (beating by $3.3 million) and adjusted EPS of $0.02 (which crushed expectations by $0.10). With the business firing, management raised full-year ARR guidance to +30% and revenue growth guidance to 28% to 30% (analysts had seen 2019 revenue up 26.4% to $308.5 million). EPS guidance of $0.05 is in line with current consensus but seems very conservative given the Q1 result and boost in revenue guidance. The stock hasn’t changed much since the report, which isn’t all that surprising given that it’s up almost 70% in 2019. Keep Holding. HOLD.
Earnings: DONE
Repligen (RGEN) spiked higher two weeks ago on an earnings pre-announcement and news it will acquire C Technologies. This week it reported official results, which were as expected. Revenue was up 35.3% to $60.6 million (beating expectations by $7 million) while adjusted EPS of $0.28 beat by $0.09. Management raised revenue guidance (from $218 million to $225 million) to $235 million to $241 million (+22% to 25%). And it bumped up EPS guidance (from $0.81 to $0.86) to $0.84 to $0.90. But this doesn’t include the C-Tech acquisition, which should close in June and could drive roughly $8 million more in revenue this year ($16 million to $17 million annualized). Repligen is back, baby! The stock is trading up near all-time highs. Be a little cautious with new position sizing since we are right around overhead resistance. But I do think there’s enough momentum to move the stock into some white space and trend higher over the coming months. BUY.
Earnings: DONE
Upland Software (UPLD) reported a solid quarter last week with revenue up 53.4% to $48.5 million and adjusted EPS of $0.53, which beat by a penny. This was Upland’s 19th consecutive quarter beating expectations (think they guide conservatively?). The trend of improving organic revenue growth continues (+9.6% in the quarter). And management reiterated 2019 guidance of revenue up $202.4 million to $206.4 million (up ~36%) and adjusted EBITDA of $73.7 million to $76.1 million. The good quarter was followed with news of a secondary offering priced at 42. Shares pulled back a little into the offering but have since bounced back up to around 47. That’s a good sign of high demand. You can keep Buying. BUY.
Earnings: DONE
