Earnings Season Kicks Off
This week marks the beginning of the second-quarter earnings season and the third reporting season to occur in calendar year-2019 (Q4 2018 results were reported early in the year).
Expect plenty of fireworks. I don’t foresee any major changes in the trends in any of our companies, but stock price reactions and trends don’t always line up in the short term!
By the time our companies start to report, which will be in roughly two weeks, many larger companies will have already reported. And analysts will be reading into those results, speculating on global growth, interest rate policy and myriad other macro-economic trends of importance.
That will set the tone of the market once our results start to pour in. In the meantime, don’t expect a lot of news from our companies. Most of them are in a quiet period, preserving news for their quarterly report. That leaves us without a lot of fundamental news to talk about, with a few exceptions. This is fine as it gives us a chance to check in quickly on our respective stocks’ recent performance.
Stay cool this weekend! Looks like it’s going to be a hot one across much of the country.
Changes this week
None
Updates
AppFolio (APPF) is trading just 2% off its high 10 days before it announces earnings. The report is always one of those anti-climactic events because management doesn’t take questions from analysts and its comments are about as stale as an open sleeve of Ritz Crackers in mid-August. This stock is doing well because, even though we’d all like more insight, the market cares more about what management does than what it says. And it’s doing just fine. Revenue is expected to be up 35% to $63.7 million in the quarter, and EPS is seen coming in around $0.11, a good deal lower than a year ago (when EPS was $0.21) due to investments. HOLD.
Announced Earnings Date: 7/29/19
Arena Pharmaceuticals (ARNA) is little changed over the last week and is trading at all-time highs. The current strength is partially attributed to better performance in biotech, and a modest uptick in interest since management announced it had dosed the first patient in the first of two Phase 3 trials (ELEVATE UC 52) evaluating etrasimod in patients with severely active ulcerative colitis (UC). BUY.
Estimated Earnings Date: 8/5/19
Avalara (AVLR) is another stock, like Everbridge, that’s emerging as one of those with tremendous scarcity value. It’s just not that easy to emulate the company’s tax library. The more it offers to customers the greater the distance between Avalara and the next contender. I won’t pretend the stock is not overvalued. The Enterprise Value/Forward Revenue multiple is 16.7. That’s in the same neighborhood as ServiceNow (NOW) and Everbridge (EVBG), which both trade with multiples in the high 15s, but still well below the 22.8 multiple of Shopify (SHOP). That’s rich. Avalara was a small cap when we got into it but now has a market cap over $6 billion. The good thing is we don’t have to sell just because it’s doing well like a lot of small-cap index funds! BUY
Announced Earnings Date: 8/7/19
CareDx (CDNA) took a hit this week from that short attack from Kerrisdale. Shares are off 21% since last Thursday’s close. But they’ve held above their 200-day line so far and based on how these things have gone in the past I think the selling is largely behind us. As I wrote in this week’s Special Bulletin this was a hack research job that focused on a couple of risks and blew them out of proportion. It’d be like if you went to your physician and asked, “Hey doc, what could go wrong?” Then picked apart a few things that he said were potential risks and told all your friends you were a gonner. Earnings are due out on August 1. I don’t like to be in the position of acting like a cheerleader for a stock. CareDx can defend itself, and really, the best defense is to just put up the numbers. We’ll hear what CareDx has to say for itself on August 1. I think there’s an opportunity to make 10% over the next two weeks. If that happens you can average out of newly purchased shares to lock in a quick gain ahead of earnings. BUY.
Announced Earnings Date: 8/1/19
Codexis (CDXS) has been a big mushburger over the last month with the stock essentially pegged within a few percentage points of 18.5. Stepping back, the stock’s been consolidating in the 15 to 23 range since the end of November. That type of action isn’t unusual for Codexis, which has come out of periods like this and moved higher several times since the end of 2017. This time could be different. But until that’s borne out in the chart I’ll keep at buy. BUY.
Estimated Earnings Date: 8/8/19
Domo (DOMO) is one of the few thorns in my side. I like the story and the potential, but the stock isn’t helping us any. Shares are down 25% since I recommended it, and by 11% over the past week. This pattern of lower highs and lower lows that’s persisted since March is anything but bullish. Why are we still holding on? Because this is a smallish (market cap of $740 million) company with a big idea that’s not a certain success just yet. That means a bifurcated outlook from investors. That spells opportunity. DOMO also hasn’t been public all that long, having just come public a year ago. And that big jump in mid-March was due to an earnings beat when expectations were relatively low. It’s certainly not a buy here but I’d like to hold through earnings since the chart’s telling us expectations are low again. HOLD.
Estimated Earnings Date: 9/6/19
Everbridge (EVBG) broke out in February and has been running free since. As I said last week there aren’t a lot of players that can send messages directly to mobile devices in over 200 countries. Everbridge has scarcity value; you just don’t find companies like this laying on the side of the road every day. When you do, pick them up and tuck them in your pocket. Then try not to sell them. HOLD.
Announced Earnings Date: 8/5/19
EverQuote’s (EVER) chart is as pretty as they come. The stock keeps ticking higher, almost nonchalantly. It’s a small company, with a market cap of $370 million. Even at 14, which is 10 above the stock’s December low, EverQuote is still well below its IPO price of 18. Assuming no big surprises on earnings, I think the stock will be back at that level in a couple months. BUY.
Estimated Earnings Date: 8/5/19
Goosehead Insurance (GSHD) is on one of those slow slides during which the stock ticks lower almost every day for a few weeks. It’s not a great look, but I don’t find it particularly concerning. I suspect it’s mostly a reflection of a relatively low float and a general pause in buying activity, which makes sense given the stock’s move from 30 to 50 in May and June. That 67% move put Goosehead firmly in the black for us. We’re not up quite so much now, but with a respectable 40% gain, a nice little pullback here, and a compelling growth story I’m still a fan. I’d really like to see shares hold above 40. BUY.
Estimated Earnings Date: 8/7/19
Quanterix (QTRX) peaked on June 20 bounced around a little then gave back roughly 20%. Shares found support at 30 and have worked higher from there the last few sessions. After the June move from 22 to 36, an equity offering and the announcement of the UmanDiagnostics acquisition, a little volatility isn’t surprising. Management has talked a good deal about their intention to move into the diagnostics market at some point, but with a nice growth trajectory (revenue up 100% in 2018, and expected to rise 25% this year and 40% in 2020), management is being appropriately cautious not to screw things up. Diagnostics is a big carrot as the market is so much bigger than research, the sandbox in which Quanterix is now playing. Keep holding and let’s see how the stock acts heading into its report, which is expected early next month. HOLD.
Estimated Earnings Date: 8/8/19
Q2 Holdings (QTWO) is hanging tough at its all-time high. The prospect of an interest rate cut isn’t great for bank profitability. But digital banking solutions like those Q2 sells are too strategically important for credit union and bank CEOs to pull the plug on the investment. The stock looks good going back to 2013, other than a couple dips below the 200-day line. I’m not going to fight that trend, especially when analysts see revenue growth accelerating to 29% this year from 26% in 2018. August 7 is the big day. BUY.
Announced Earnings Date: 8/7/19
Rapid7 (RPD) was mostly flat this week but is up 7% over the past two weeks and trading right at an all-time high. I moved to buy three weeks ago anticipating shares were coming out of a consolidation phase and that’s been the right call, so far. I think this move has legs going into earnings, after which it will be all about the results and forward outlook. You can keep buying. BUY.
Announced Earnings Date: 8/1/19
Repligen (RGEN) came out of the gate hard this week, announcing a combo stock offering and convertible note offering worth a total of $370 million (around 9% of the company’s current market cap). The share offer price came out at $87, just slightly below where RGEN closed yesterday. The securities should hit the market today. I’ve talked a little about these offerings in the past with respect to other stocks. They often give you a sense of the demand for a company’s stock. When the share price is barely impacted and the market inhales the offering, it’s a good sign. Buy into it as there’s a decent chance the stock will be higher a month later. Suffice to say, I’m keeping my rating at buy for Repligen. This deal likely means a few rapid-growth and/or strategic acquisitions will be announced before 2020. BUY.
Estimated Earnings Date: 7/31/19
Veracyte (VCYT) dipped slightly after I recommended it a few weeks ago then perked right back up, keeping the stock above its 50-day line, where it’s mostly traded for the last year. There’s nothing new to report. Veracyte specializes in genomic diagnostics solutions that can help detect disease early and inform treatment decisions. They’re all minimally invasive and covered by Medicare. We’re looking for revenue to grow around 29% this year, for EPS to improve by 50%, to a loss of -$0.31, and for Veracyte to achieve cash flow breakeven. BUY.
Estimated Earnings Date: 7/30/19
Upland Software (UPLD) peaked in early June and hasn’t done much since. The stock trades near where it was at the end of April, and probably will continue to do so through the next earnings release, which is expected early next month. Upland has the potential to be a big winner for us. We’re up 30% since the beginning of March, which isn’t bad. But for the stock to become a real leader we’ll need to see more progress in the organic growth department, which would drive valuation up and show investors Upland doesn’t have to buy growth - it can generate it on its own too. BUY.
Estimated Earnings Date: 8/8/19
